Merk Economics Release-Durable Goods Orders: July 2008

The durable goods orders estimate for the month of July provides a much-needed bout of good news after a week of very dreary economic data. The headline advanced 1.3% m/m but declined -2.4% y/y. Ex transportation, orders for durables increased 0.7% m/m and 5.5% y/y. Ex defense, new orders climbed 2.8% m/m and -2.6% y/y.

Orders for capital goods increased 2.0% for the month, which was fueled by a 6.3% advance in orders for non-defense goods. Orders in the transportation sector increased 3.1%, due to a 28% increase in demand for non-defense aircraft. Demand for machinery increased 4.6%, primary metals 2.2% and fabricated metals 0.4%. Orders for computers and electrical equipment declined -1.3% and -6.0% respectively. Shipments were up 2.5% overall, with the ex-transportation component rising 2.0% and the ex-defense estimate up 2.3%. The closely watched shipments of capital goods non-defense, ex-aircraft, which feeds into GDP rose 6.7% on a three month annualized basis.

The second straight 1.3% increase in durable goods orders mostly on the back of external demand and a weak dollar during the sampling period. The surprise increase was in one part a function of strong demand for non-defense civilian aircraft and another a robust demand for commodities. Bookings for non-defense capital goods excluding aircraft, which is an indicator of business investment going forward advanced 2.6%. When taken in combination with the solid rise in the 0.6% increase month over month in the shipments of capital goods, non-defense ex-aircraft it does appear that business spending may provide an unexpected source of support for growth in the third quarter. More importantly, we think that demand from emerging markets will continue to provide a source of demand for export oriented firms that will partially offset the deceleration in Europe and Japan. This is but another sign of subtle transformation in the global economic landscape that over time will favor emerging economies.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: Durable Goods Orders: July 2008