Durable Goods Top Expectations as Nondefense Spending Surges

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The July durable goods report delivered a stronger-than-expected performance, providing evidence that the U.S. economy continues to weather headwinds from tariffs and elevated financing costs. Headline orders fell 2.8% month over month, but that was far better than the consensus forecast of a 4.0% drop and marked an improvement from June’s 9.4% slide. Excluding the volatile transportation category, orders actually rose 1.1%—well above expectations for just a 0.2% gain—highlighting underlying resilience in business investment. The data broadly reinforce the view that the industrial side of the economy remains on firmer footing than some feared, with particular strength in nondefense capital goods signaling continued corporate investment appetite.

One of the most encouraging elements of the report was nondefense capital goods excluding aircraft, often seen as a proxy for business investment. Orders in this category rose 1.1% in July, well above expectations of just 0.2%. That followed a 0.6% decline in June, suggesting momentum has shifted back toward expansion. Shipments of these same goods climbed 0.7% after a 0.4% increase in June, indicating that the investment pipeline is not just filling but also translating into near-term output. The improvement in nondefense spending is especially important given the policy backdrop, as tariffs and political pressure on the Federal Reserve have injected uncertainty into the outlook. For now, businesses appear willing to maintain a steady pace of capital expenditures.

Within the report, several categories stood out as leaders. Nondefense aircraft and parts shipments surged 15.5% month over month and are now up more than 34% year to date, reflecting a major rebound in aerospace as companies work through backlogs and fulfill export orders. Defense aircraft and parts orders also impressed with a 10.3% monthly gain, underscoring persistent strength in military demand. Computers and related products continued their strong run despite tariff headwinds, with shipments up 4.5% and new orders up 3.5%, reflecting ongoing investment in technology. Broader nondefense capital goods shipments rose 3.3%, another sign that businesses remain committed to longer-term investments.

Not all areas participated in the strength. Nondefense aircraft and parts orders fell 32.7% in July, but this drop comes after a surge earlier in the year that still leaves the category up 139% year to date. In other words, the volatility is notable but the broader trend remains overwhelmingly positive. Defense capital goods orders fell 9.7% following strong prior months, suggesting some normalization rather than structural weakness. More concerning was the 9.7% drop in transportation equipment orders, a category that has now fallen in three of the past four months. Capital goods overall fell 8.8% and nondefense capital goods orders slipped 8.7%, both categories that had otherwise logged strong year-to-date gains. These declines raise questions about whether the tariff environment and elevated financing costs are starting to show up in forward-looking order books.

Looking at year-to-date patterns, aerospace remains the clear engine of growth. Nondefense aircraft and parts orders are up 139% since the start of the year, with shipments up 34%. Capital goods more broadly are showing robust double-digit gains, with orders for nondefense capital goods up 21% and transportation equipment up 19%. These figures underscore strong structural demand despite the month-to-month noise. However, motor vehicles and parts tell a different story: both shipments and new orders are down just over 1% year to date, making them the only major category to register outright contraction. This weakness may reflect tariff-driven supply chain pressures and higher borrowing costs that are dampening auto demand. Primary metals orders are barely positive for the year, up just 0.4%, another likely casualty of tariff policy that has disrupted supply channels and constrained growth.

Beyond orders, shipments rose 1.4% in July, extending a steady upward trend, while inventories climbed 0.3% for the tenth straight month. Unfilled orders edged up slightly, reflecting continued demand momentum. Electrical equipment was one of the few areas to show across-the-board strength, with orders and shipments rising steadily, likely supported by investment in grid and data infrastructure. The sector’s performance also suggests that not all manufacturing is being equally hit by tariffs, with certain areas tied to domestic infrastructure more insulated.

In sum, the July durable goods report points to an economy that remains fundamentally solid. The headline decline in orders masked stronger core trends, particularly in nondefense capital goods, where both orders and shipments handily topped expectations. Aerospace and technology spending remain bright spots, while motor vehicles, primary metals, and broader transportation equipment categories show pressure that likely reflects tariff impacts and higher financing costs. The report suggests that while the industrial base continues to perform well, tariffs are creating pockets of weakness, especially in sectors directly exposed to international supply chains. For policymakers and markets alike, the message is that underlying demand is still strong, but the trade environment is shaping sectoral winners and losers in increasingly visible ways.