Orders of durable goods fell 1.0% in June following a revised 0.8% decline in May. These numbers are partly distorted by the large swings in bookings of aircraft orders, which have dropped 30.2% and 25.6%, respectively, in May and June.  The large reductions of aircraft orders are expected to be reversed in July.  Total orders advanced in the December-April months and they have risen year-to-year for a stretch of six straight months but the pace of gains has slowed (see chart 1).  On a quarterly basis, orders of all durable goods moved up at an annual rate of 9.3% vs. a 25.5% jump in the first quarter.   

Shipments of durable goods fell in May and June but they have risen on a quarterly basis.  In June, orders (+0.6%) and shipments (+0.2%) of non-defense capital goods excluding aircraft advanced.  In the second quarter inflation adjusted shipments of non-defense capital goods excluding aircraft, the input for equipment and software spending in the GDP report, rose at an annual rate 14.5% vs. a 10.7% increase in the first quarter.  The large increase points to a significant contribution of equipment and software spending to real GDP in the second quarter; the report is scheduled for publication on July 30.  In the first quarter, real equipment and software spending rose at an annual rate of 11.4%. 

From the details of the report, in June, orders of electrical equipment (+3.7%), communications (+1.5%), and motor vehicles (+2.5%) advanced while that of primary metals (-2.0%), general machinery (-0.7%), and computers and electronic products (-1.9%). 

Update on Inflation Expectations

In the inflation/deflation debate, deflation has taken the upper hand following the three consecutive monthly declines of the Consumer Price Index (CPI).  Consistent with the decelerating trend of year-to-year changes in the overall CPI and the core CPI, inflation expectations also show a downward trend (see chart 3).  Inflation expectations, as measured by the difference between the nominal yield on 10-year Treasury securities and the 10-year TIP rate, have declined to 182 bps from a recent high of 245 bps on April 29 (see chart 4).  In the past week, inflation expectations have gained a few basis points but the reversal of trend is still noteworthy.