New Orders Tumble as Transportation Sector Falls 13% in June

The decline in orders for durable goods was significantly worse than expected in June. Orders fell by 2.5% in the month, which in percentage terms is five times worse than analysts’ expectations. The sharp drop is the biggest in five months, and follows two straight increases including a 1.3% advance in May. 

However, weakness wasn’t broad-based. When the transportation is excluded, orders for durable goods actually increased 1.1% in the month, marking the largest increase in four months. The transportation sector plunged 12.8% in the month, mostly as a result of the staggering 38.5% drop in orders for commercial planes, as Boeing has had problems with the production of its 787 Dreamliner. 

“The decline in June orders is transitory, following two previous months of strong growth, and our models continue to point to strong growth in DGOs in the 3rd and 4th Quarters of 2009,” said John Herrmann, from Herrmann Forecasting, prior to the release. 

Shortly after the release Herrmann said orders for durable goods should begin the second half of a V-shaped trajectory in the third quarter.

Spending on military gear shrunk 28% in June. Excluding spending on defense, new orders decreased 0.7%.

Non-defense capital spending excluding aircraft, a proxy for business investment, increased 1.4% in June, adding to a 4.3% gain in May. 

TD strategist Millan Mulraine noted the drop in total orders put the value of durable goods orders to its lowest level since August 1996. However, he said core capital goods orders â€