U.S. durable goods orders rise 0.3%, missing June forecasts

A weaker-than-expected rebound in U.S. durable goods orders suggests business investment is cooling, reinforcing expectations for the Federal Reserve to hold rates steady this week.

New orders for U.S. manufactured durable goods rose 0.3% in June to $334.8 billion, missing the 1.7% consensus estimate and reversing May's revised 4% decline, Census Bureau data showed Monday.

The June reading extended a pattern of uneven manufacturing demand, with the prior month's decline revised deeper to 4% from an initially reported 4.5% drop, the Census Bureau said. The back-to-back soft prints come as markets price a 34% probability of a Federal Reserve rate hike at this week's meeting, according to LSEG data — a sharp reversal from the cuts anticipated earlier this year when markets had priced in as many as three quarter-point reductions.

Transportation equipment led the June increase, though excluding transportation, new orders were little changed, the report showed. The two-year breakeven inflation rate has fallen to near five-year lows at 1.9%, down from a peak near 3.2% in May, showing that markets are pricing in disinflation despite the recent surge in oil prices as Middle East hostilities escalated. Brent crude has climbed above $85 a barrel as the US-Iran conflict extended, adding to input cost pressures for manufacturers already navigating uncertain demand.

The soft durable goods data adds to the case for the Fed to hold rates at this week's meeting, where Chair Warsh's press conference will be scrutinized for any shift in the dot plot. A hawkish surprise risks pushing yields and the dollar higher, placing further pressure on equities and industrial stocks. Friday's core PCE price index reading, the Fed's preferred inflation gauge, will help shape the outlook for the September meeting, with markets currently pricing a roughly one-in-three chance of a hike by year-end.

Manufacturing Diverges From Services

The manufacturing weakness contrasts with a still-resilient services sector and a labor market that continues to generate steady payroll gains. The ISM services PMI has remained in expansion territory for the past four months, while the manufacturing gauge has hovered near the contraction threshold, highlighting the divergence between the two sides of the economy.

The S&P 500 fell 0.6% last week, its second consecutive weekly decline, as technology led losses while energy and industrials outperformed on elevated Middle East tensions. The Nasdaq 100 dropped 1.6% over the same period, while the Dow Jones lost a more modest 0.4%. Defensive sectors and energy names have gained as investors rotate away from growth stocks as uncertainty over the rate path and geopolitical risks persists.

A sustained slowdown in capital goods orders would pressure earnings for industrial companies that have benefited from a rebound in manufacturing activity earlier this year. The last time durable goods orders posted consecutive monthly misses of this magnitude was in late 2024, preceding a period of underperformance in the industrial sector relative to the broader market. Companies in the S&P 500 industrial sector are reporting this week, with investors focused on forward guidance and order backlogs as key indicators of demand momentum.

The data also carries implications for currency markets. The dollar has strengthened this month on the back of hawkish Fed expectations, with the DXY index pushing higher as rate differentials favor the US. A weaker-than-expected durable goods reading could temper some of that strength if it reinforces the case for the Fed to remain on hold rather than hike, though much will depend on Friday's PCE data. USD/JPY is sitting just below the 61.8% Fibonacci extension near 164.1, with a break above that level potentially opening the path toward 166.

Looking ahead, the July durable goods report will be the first to fully capture the impact of the recent escalation in US-Iran tensions, which has pushed oil prices higher and could feed through to input costs for manufacturers. For now, the data supports the view that the Fed has room to remain on hold without risking an overheating economy, even as the manufacturing sector shows signs of cooling. The next major test for the macro outlook comes Friday with the core PCE print, which will either validate or challenge the market's current rate expectations.

This article is for informational purposes only and does not constitute investment advice.