Durable goods orders surge in July, spurred by transportation equipment

Durable goods orders jumped 11.2% in July, after an upwardly revised 7.7% rise in June, first reported as a 7.6% gain, the Commerce Department said Wednesday.

Transportation equipment orders, which surged 35.6%, were a major factor in the rise in overall orders.

Excluding transportation, orders rose 2.4% in the month.

Economists polled by IFR Markets estimated orders would rise 4.2% and climb 2.1% excluding transportation orders.
Core capital goods, which is a harbinger of business investment plans rose a 1.9% in the month after a 4.3% climb in June.

Scott Anderson, chief economist at Bank of the West said the July numbers “suggests manufacturing activity will continue to support economic growth over the near term.”

Concerns over financial stability
Anderson also stated his concern for the stability of the U.S. financial system, exacerbated by the Federal Open Market Committee’s use of the word "notable" to describe vulnerabilities in the system, as revealed in the minutes of its July meeting.

“For the normally understated Fed, using the word ‘notable’ to describe financial vulnerabilities is equivalent to a fire station ringing the alarm bells on a five-alarm fire in the middle of the night,” he wrote. “Without significant further economic improvement backed by full-throated government stimulus, I fear the leverage, insolvency and default problems will soon begin to break the surface of the calm financial waters investors have been sailing in.”

Congress' failure to agree on more stimulus, adds to the risk. “The delay and downsizing of the next Federal fiscal rescue package not only puts the unemployed at risk, but the stability of our entire financial system that appears more vulnerable today than it was when this pandemic began.”

The minutes suggest several "FOMC participants commented on various potential risks to financial stability, especially if one of the more adverse scenarios regarding the spread of the virus and its effects on economic activity was realized," Anderson noted. "Nonfinancial corporations carried high levels of indebtedness going into the pandemic, increasing their risk of insolvency."

Craig Kirsner, president of Stuart Estate Planning Wealth Advisors, remains “very concerned” about the financial vulnerabilities of the U.S. financial system.

“Heading into the current economic collapse, Americans had taken on record amounts of auto loans, credit-card debt and student loan, as well as corporate debt also reaching record levels,” he said. "So banks are setting aside a lot of money for potential future losses. Just recently the five largest banks announced their plans to set aside $35 billion to prepare for what could be a wave of future loan defaults.”

And, that didn't end well in the past. “We've seen this movie before: Sky-high real estate prices, sky-high stock market prices and the Fed raising then lowering interest rates and we know how this movie is going to end we just don't know when,” he said. “I am calling the current bubble the Central Bankers Bubble. I do believe this new bubble the Fed created will burst which will be a very challenging time. I am a retirement planner for mostly retired millionaires, so if my time horizon was shorter I'd be very concerned about being a very aggressive investor.”

Elsewhere, Federal Reserve Board Gov. Michelle Bowman, reiterated the Fed would do all in its power to back the economic recovery. She told the Kansas bankers Association, "While the road ahead is highly uncertain, and we don’t yet know when the economy will return to its previous strength, America will recover from this crisis, as it has from all of our past challenges."

Strong economic fundamentals and a "solid foundation of the entrepreneurial spirit and resiliency of the American people" provide a basis for recovery." Meanwhile, the Fed "will continue to monitor progress and respond promptly and flexibly to support the recovery."

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