In June, US durable goods orders decreased by 9.3%, against an expectation of a 10.8% drop. This followed a revised increase to 16.5% in May, marking the largest rise since July 2014. The transportation sector saw a substantial decline, falling by 22.4% or $32.6 billion, influencing the results significantly. When excluding transportation, orders increased by 0.2%, aligning with the revised figure of 0.6% from the previous month.
Orders excluding defence decreased by 9.4%, compared to a 15.7% increase in May, which was an adjustment from 15.5%. Non-defence capital goods excluding aircraft fell by 0.7%, contrasting with a 2.0% increase in May. Future factory orders will further revise these advanced durable goods figures for June.
June Decline and Market Reaction
The decline in June was the steepest since April 2020. A possible reason for the volatility includes President Trump’s focus on selling large items like defence equipment and aircraft to enhance trade numbers. Anticipated market responses show minor gains: the Dow industrial average is projected to open 68 points higher, with the S&P index and NASDAQ expected to gain 10.15 points and 8.63 points, respectively.
We see the market opening higher because the -9.3% decline in durable goods orders, while steep, was not as severe as the -10.8% drop economists predicted. This “less bad” news is giving traders some initial relief. The key takeaway is that the market was braced for an even worse outcome.
Looking past the headline figure, the most encouraging detail is the 0.2% rise in orders when you exclude transportation. This suggests that businesses are still spending on equipment and machinery, a quiet sign of strength. This core spending is what we should watch more closely than the volatile top-line number.
This underlying resilience aligns with other recent data we’ve seen. For example, the Institute for Supply Management’s (ISM) latest manufacturing index, while still in contraction territory, showed the “new orders” component improved, moving from 45.6 to 46. This hints that the worst of the manufacturing slowdown may be behind us, supporting the idea that core business spending is stabilizing.
Factors Driving Swings and Trading Strategies
The big swings are coming from transportation and defense, just as Michalowski noted. A 22.4% drop in transportation orders in a single month is what drove the entire headline number down. We should anticipate this pattern continuing, making the headline durable goods report a source of major market volatility.
Historically, a drop of this size is significant, with the last comparable one being during the April 2020 shutdowns. The prior month’s surge was the largest since 2014, showing how extreme these fluctuations have become. As the author speculates, politically driven sales of aircraft and defense goods could make these wild monthly swings the new standard.
For our trading strategies, this points directly toward using options to manage the expected turbulence. We should consider buying volatility or using spreads on industrial sector ETFs to protect against, or profit from, these sharp moves. The divergence between the volatile headline and the steadier core data creates opportunities for traders who can look beneath the surface.
