Durable goods orders in August were disappointing, coming in sharply below expectations. But excluding transportation, the news is not so bad for one of the most volatile monthly series published by the government. Durable goods orders in August dropped 2.4, after a revised 4.8 percent surge in July. The August number came in far below the consensus forecast for a 1.0 percent gain. Excluding the transportation component, new durables orders were unchanged, following an upwardly revised 0.9 percent boost in July.

The drop in new orders was led by transportation, which fell 9.3 percent. Within transportation, nondefense aircraft fell 42.2 percent, defense aircraft declined 10.6 percent, and motor vehicles rose 0.4 percent. Otherwise, new orders were mixed.

Showing gains were primary metals, up 1.9 percent; fabricated metals, up 0.8 percent; machinery, up 0.7 percent; and communications equipment, up 1.6 percent. In addition to transportation, weakness was seen in computers & electronics, down 0.7 percent; electrical equipment, down 0.5 percent; and all other, down 1.1 percent.

Year-on-year, overall new orders for durable goods rose to down 20.2 percent in August from down 22.8 percent the previous month. Excluding transportation, new durables orders improved to minus 18.9 percent from down 22.3 percent in July.

The latest durables report showed August pulled down largely by nondefense and defense aircraft orders. Also, motor vehicle orders did not rise as much as many expected after the cash-for-clunkers program drained auto inventories. A key point that should not be overlooked is that the government survey sample may not have picked up all of the activity in autos. We likely will get stronger numbers (including revisions) for autos in the next report or two. Basically, the latest durables numbers acted as a reminder that in a sluggish recovery, the monthly numbers are going to be choppy. On the release, Treasury prices rose and equity futures dipped.

Market Consensus Before Announcement
Durable goods orders shot up a revised 5.1 percent in July after a 1.3 percent dip the prior month. Even after excluding an 18.5 percent surge in transportation, orders still advanced a strong 1.1 percent in the latest month. Looking ahead for August, a number of manufacturing surveys have shown a spike in new orders for the month-notably the ISM new orders index for manufacturing jumped to 64.9 from 55.3 in July.