Durable goods order slump 2.1% in June

We’re starting to get the final numbers for Q2′s growth, and it’s looking decidedly grim. The Commerce Department reported that durable-goods orders sank significantly in June, down 2.1% from May. It’s worse than April’s adjusted decline (-2.5%) and confirms the quarter as a net loser:

New orders for manufactured durable goods in June decreased $4.0 billion or 2.1 percent to $192.0 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 1.9 percent May increase. Excluding transportation, new orders increased 0.1 percent. Excluding defense, new orders decreased 1.8 percent. Transportation equipment, also down two of the last three months, had the largest decrease, $4.2 billion or 8.5 percent to $45.4 billion. This was due to nondefense aircraft and parts which decreased $2.8 billion.

In other bad news, inventories continue to swell, which will put a damper on further orders. In fact, inventories hit a new high:

Inventories of manufactured durable goods in June, up eighteen consecutive months, increased $1.6 billion or 0.4 percent to $357.2 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 1.2 percent May increase. Transportation equipment, also up eighteen consecutive months, had the largest increase, $1.2 billion or 1.1 percent to $109.1 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 1.7 percent May increase.

Businesses appear to be abandoning expansion, as nondefense new orders for capital goods in June dropped 4.1%. That’s a hefty pullback, and one that is worth noting, considering the special tax break added for 2011. Capital purchases by businesses can be fully deducted in this tax year, a temporary change added to provide an incentive for investment and expansion. Whatever has held back businesses from investing has nothing to do with tax write-offs.

Reuters, as usual, didn’t see this coming:

New orders for long-lasting U.S. manufactured goods fell unexpectedly in June, weighed down by weak receipts for transportation equipment, a government report showed on Wednesday.

The Commerce Department said durable goods orders dropped 2.1 percent, reversing May’s downwardly revised 1.9 percent increase. Durable goods are items ranging from toasters to aircraft that are meant to last three years or more.

Economists polled by Reuters had expected orders to rise 0.3 percent last month after May’s previously reported 2.1 percent increase.

Durable goods orders are a leading indicator of manufacturing. Though orders tend to be volatile, last month’s unexpected decline could add to fears of a slowdown in factory activity and support views that the economy will not emerge quickly from its current soft patch.

The bigger concern isn’t a “soft patch,” it’s a new recession. On Friday, Commerce will report the preliminary GDP growth rate for the second quarter. With the durable-goods orders series in Q2 at -2.5%, 1.9%, and -2.1%, there is a very good chance that the Friday number will be negative, the first negative quarter since 2009Q2. It almost certainly won’t match last quarter’s anemic 1.9%.

When the number comes in on Friday, expect Reuters to include “unexpectedly” in the report.