Decline in US Durable Goods Orders for May 2017

Often seen as a marker for business investment, U.S. durable goods orders fell for the second month in May 2017. According to a report by the U.S. Commerce Department, durable goods (items meant to last a minimum of three years) fell 1.1 percent between April and May, dropping to $228.2 billion.

May’s decline marks the largest drop in six months and is greatly attributed to a decrease in orders for aircraft. While previously a strength, aircraft orders have declined for the second time in two months with a 12 percent decrease in orders for commercial aircraft and a 31 percent decrease in orders for defense aircraft, a notoriously volatile category.

Core capital goods were another area of weakness in May with an unexpected 0.2 decline in both orders and shipments for this category.

In contrast, there was a 0.6 percent increase in machine orders, a 1.2 percent increase in vehicle orders, and a 0.8 percent gain in total shipments.

Excluding the category of transportation (which does not include aircraft), durable goods orders also rose very slightly, increasing by 0.1 percent/

While not completely negative, May’s readings point to a lack of confidence in business prospects in the United States.

Solid Growth Reported in the Eurozone Retail Sector for May 2017

Eurozone retailers recorded an increase in like-for-like sales in May according to the latest IHS Markit Eurozone Retail PMI report. While positive overall, the data highlighted a country level discrepancy: encouragingly high levels of growth in Germany and France counterbalanced a continuing decline in retail sales in Italy.

The IHS Markit Eurozone Retail PMI (measuring month-on-month changes in like-for-like retail sales in France, Germany, and Italy) was measured at 52.0. Decreasing from 52.7 in April, the reading points to a solid though slightly weaker rise in sales for the month.

Conversely, sales were down on an annual basis and the data showcased across the board under performance by retailers. All three countries reported gaps between forecast and actual sales with the highest discrepancy recorded in Italy.  

Gross margins fell sharply as retailers were faced with a rise in average purchasing costs. Input price inflation was reported in all three economies, most markedly in Germany.

High levels of purchase activity were also reported, catalyzed by high sales volumes and contributing to a continuing increase in stocks of goods for resale.

Finally, the data showed a rise in retail sector employment, continuing a trend which began in November 2015.

Alex Gill of IHS Markit concludes, “Overall the data paint a positive picture of the euro area retail sector. However, a sharp fall in gross margins suggests the business climate remains challenging”.

Steady Economic Growth in the Eurozone Led by the "Big Two"

According to the latest data made available by IHS Markit, the eurozone continues to grow at a record pace. The final reading of the IHS Markit Eurozone PMI Composite Output Index for May 2017 remained at 56.8, unchanged from April's final reading. 

Output expansion in the zone was bolstered by the strong growth of new business while high levels of new orders spurred faster job creation, leading to a marked rise in employment. The manufacturing sector led the overall expansion with goods production rising at a rapid pace. 

This steady rate of growth is led by the "big two" nations, France and Germany. In Germany, growth was attributed to an increase in manufacturing production while in France, growth came as a result of a strong performance in the service sector. 

The IHS Markit Eurozone PMI Services Business Activity Index came in at 56.3, a slight decrease from 56.4 in April. According to the release, all "big four" economies (including France, Germany, Spain, and Italy) saw an increase in output, with the expansion of eurozone services business activity sparked by an increase in new orders. This increase also led to an increase in job creation and a corresponding increase in staffing levels. 

In conclusion, Chris Williamson, Chief Business Economist at IHS Markit, stated, "The final PMI readings add to mounting evidence that the eurozone is enjoying a strong second quarter, consistent with GDP rising at a 0.7% rate...The outlook for the eurozone economy therefore seem to be tilting to the upside and it seems likely that we'll start to see many forecasters' expectations for 2017 growth revised higher". 

Final reports on IHS Markit PMI readings for France and Germany in May 2017 are also available.