Let's take a quick look inside the Durables Report:
Transportation equipment, up three of the last four months, had the largest increase, $6.8 billion or 18.4 percent to $43.7 billion.
No really? Cash for clunkers guys and dolls. Of course that was up huge. Go by a car lot lately?
Pulling forward demand looks good once. It looks horrible later, because you suck all the oxygen out of the room and leave a vacuum behind.
Inventory drawdown continues, down 0.8% in July. Again, most of this may be related to the CFC program. We'll see.
Unfilled orders continued to decrease, showing that there is still no backlog build. This is a forward-looking number as opposed to the rest of the series which is a look in the rear-view mirror. Until and unless backlog starts to pick up you're not squeezing capacity utilization, and anyone calling "green shoots" needs their head examined - there simply is no argument for the slack in the system being taken up.
Defense orders are up 14.8%, again putting a fork in the Democrat/Liberal dreams of Obama pulling back on the military. Nope. This is a consistent trend since the beginning of his administration - he's a big-military guy folks, despite what you may have wished. Welcome to reality; defense was the only year/over/year positive change.
Machinery shipments and new orders were both down, which is one of my "key item" areas for manufacturing on a forward basis, since machinery is what makes "stuff". The slide there continues.
Ex-transportation shipments were up 2.2%, but new orders only up 0.8%, showing that again inventory continues to be drawn down. Computers and related shipments showed an interesting divergence - computers and such themselves were up on shipments but down big on orders (back-to-school flop?) but communications gear was up strongly on both, with new orders up big. Shipments on semiconductors were WAY up after being way down; this is the usual seasonal build for the upcoming holidays. We'll see how this holds up next month.
Overall this isn't a horrible report but it appears to show that the inventory drawdown mode continues and has not turned in July. The "inventory build" meme is critical to a positive 3Q GDP number - if it doesn't show up......
Next month's numbers will be the last look we get before the GDP print appears, and as such it will be a critical report in this regard. I will be watching it VERY closely for this reason; while CFC will certainly spike GDP that's identifiable and I believe the general inventory trend will be the one that has to work if we're going to see those "strong" 3Q and 4Q GDP numbers - numbers that are critical to the continuation of the rally we've seen in the stock market.
In terms of the macro environment I'd put this report in the "weakly supportive" bin, with most of the support coming from the known distortions (cash-for-clunkers specifically) and a great deal of volatility in the aircraft order series that (in this instance) was good for a lift. Durability of that trend is another matter; CFC is now gone of course, and until I see machinery orders and shipments turn on a durable basis (the last two months were pretty positive, but it went straight to hell this month, and it looks like a LOT of orders got canceled after the new orders numbers the last two months!) I can't call a trend change.
