How Aircraft Orders Are Impacting the Economy

Key Takeaways

• Durable goods orders were down sharply in June, caused in large part by tumbling aircraft orders.
• Economists track durable goods orders because they indicate where and how businesses spend money.
• The report likely overstated how slow industrial activity actually is.

After helping propel durable goods orders higher over the past several months, aircraft orders declined significantly in June, bringing the broader measure of business investment down with it.

Census Bureau data showed durable goods orders declined 6.6% in June from the prior month, reversing a four-month streak of gains powered by steady growth in transportation orders. It’s the largest one-month decline in the indicator since 2020.

Much of that decline can be traced back to transportation equipment orders, a subcategory of durable goods mainly comprising aircraft orders. It came in lower by 20% in June compared to May. Excluding transportation orders, durable goods orders were higher by 0.5% for the month.

Economists Say Data Belie Just How Slow Orders Are

The decline in durable goods orders was unexpected, as analysts surveyed by the Wall Street Journal and Dow Jones Newswires projected an increase of 0.3% for the month. Economists look at durable goods orders to indicate how businesses invest for future growth.

“While the manufacturing environment is still struggling, this morning’s data overstate recent weakness,” wrote Wells Fargo economists Shannon Seery Grein and Tim Quinlan. “Yet durables data are still consistent with a stalling in the industrial space.”

Economists said that Thursday’s GDP report, which measures durable goods by how many were shipped, not ordered, shows that the industrial sector may be down, but not quite as bad as the dip in durable goods orders would indicate.

Improvement Unlikely Until Interest Rates Fall

There likely won’t be sustained improvement in the sector until the Federal Reserve begins to lower interest rates that have been held at decades-high levels for nearly a year, economists said.

“Orders are likely to remain uneven until the Fed starts cutting interest rates in September,” wrote BMO Senior Economist Jay Hawkins.

The Fed is widely expected to cut interest rates by September amid signs that the economy is slowing and inflationary pressures are subsiding.

Overall, the decline in aircraft orders has had a significant impact on the economy, as durable goods orders serve as a key indicator of business investment. The unexpected decline in June’s durable goods orders, driven by a sharp drop in transportation equipment orders, has raised concerns among economists about the state of the manufacturing sector.

However, some economists argue that the data may overstate the weakness in industrial activity. The GDP report, which measures durable goods based on shipments rather than orders, suggests that the industrial sector may not be as bad as the decline in orders would indicate.

Looking ahead, economists believe that sustained improvement in the sector is unlikely until the Federal Reserve starts to lower interest rates. The current high interest rates have been a hindrance to business investment and economic growth. Once the Fed begins to cut rates, it is expected to provide a boost to the manufacturing sector and encourage businesses to increase their orders for durable goods.

In conclusion, the decline in aircraft orders has had a significant impact on the economy, leading to a decline in durable goods orders in June. While the data may overstate the weakness in industrial activity, economists believe that sustained improvement in the sector is unlikely until interest rates are lowered. As the Federal Reserve considers cutting rates, there is hope for a recovery in the manufacturing sector and increased business investment.