US Durable Goods Orders: Navigating Volatility to Spot Business and Currency Trends

The May 2025 US Durable Goods Orders report delivered a stark contrast to the December 2024 slump, revealing both the fragility and resilience of American manufacturing. While transportation equipment orders surged 48.3% month-over-month (MoM), reversing a year of volatility, non-defense capital goods excluding aircraft—the true barometer of business investment—showed a modest 1.7% MoM rise. This divergence underscores a critical theme for investors: short-term swings in sectors like aerospace and automobiles mask a more stable, albeit uneven, recovery in core business spending. For currency markets, the mixed signals create both risks and opportunities, particularly for pairs like EUR/USD and GBP/USD.

The Transportation Roller Coaster

Transportation equipment has long been the wildcard in durable goods data, with aircraft orders alone capable of swaying the entire index. In December 2024, nondefense aircraft orders plunged 45.7% MoM, dragging total durable goods down 2.2%. Fast-forward to May 2025, and Boeing's rebound—driven by pent-up demand and a rebound in commercial travel—pushed transportation orders to a record $145.4 billion. This surge, however, appears unsustainable. shows volatility mirroring the sector's swings, making it a poor indicator of long-term trends.

The Resilience of Non-Defense Capital Goods

The real story lies in non-defense capital goods excluding aircraft, which have averaged 0.25% MoM growth since 1992. May's 1.7% increase, following April's -1.38%, suggests businesses are cautiously expanding capacity. This category, which includes machinery and equipment for factories, signals underlying demand for productivity gains—a positive sign for the US economy. Historically, such figures correlate with corporate profit growth and, by extension, dollar strength.

Implications for the US Dollar

The USD's value hinges on two conflicting narratives:
1. Strength from Core Investment: Steady growth in non-defense capital goods (now above its 25-year average) suggests the economy remains robust enough to withstand Fed rate hikes. This supports the USD against risk-sensitive currencies like the AUD or NZD.
2. Weakness from Volatility: Transportation's swings and broader manufacturing uncertainty—April's 6.3% durable goods collapse is still fresh—keep traders wary. Persistent trade deficits and geopolitical risks (e.g., trade wars) amplify this caution.

For currency traders, the May rebound offers a buy-the-dip opportunity in USD if non-defense capital goods sustain their growth. However, the transportation-driven volatility means investors should hedge with options or inverse ETFs.

Currency Pair Strategies

• EUR/USD: The euro has historically weakened when US business investment outpaces Europe's. A sustained rise in US non-defense capital goods could push EUR/USD below 1.05 by year-end.
• GBP/USD: Sterling's sensitivity to US dollar strength and UK inflation makes it vulnerable. A stronger USD on resilient capital goods could test the 1.20 level.

Caveats and Risks

• Aerospace Overhang: Boeing's recovery may not last. If orders slip again, transportation volatility could reignite.
• Fed Policy: While non-defense capital goods growth supports hawkish Fed rhetoric, a recession scare could force rate cuts, weakening the USD.

Conclusion: Focus on the Core

Investors should look past transportation's noise and focus on the non-defense capital goods trendline. A consistent MoM beat above 0.5% would validate the US manufacturing rebound, bolstering the USD. Conversely, a return to declines could signal broader weakness. For now, the May data offers a cautious bullish stance on the greenback—but traders must stay nimble. As always, the devil is in the details: exclude the roller coaster, and you'll find the path forward.