Industrial Sector Resilience and Capital Goods Demand in a Slowing Economy: Core Durable Goods Orders as a Leading Indicator

The industrial sector's ability to withstand economic headwinds has become a focal point for investors and policymakers alike. As the U.S. economy slows, core durable goods orders-a critical barometer of business investment and manufacturing health-offer a nuanced picture of resilience and vulnerability. Recent data underscores a dichotomy: while headline durable goods orders faltered in October 2025 due to a sharp decline in aircraft orders, core capital goods orders rose 0.5%, signaling sustained demand for industrial equipment. This divergence highlights the importance of dissecting the components of durable goods orders to gauge the true trajectory of capital expenditures (capex) and manufacturing activity.

Core Durable Goods Orders: A Mixed Signal

According to a Reuters report, core capital goods orders-excluding volatile transportation equipment-increased by 0.5% in October 2025, following a revised 1.1% rise in September. Shipments of these goods also climbed 0.7%, reflecting ongoing production activity. These figures suggest that businesses remain committed to investing in machinery, fabricated metals, and other long-lasting equipment, even as broader economic growth decelerates. The third quarter of 2025 saw capex grow at a 5.4% annualized rate, driven by sectors like data centers and artificial intelligence infrastructure.

However, the broader durable goods landscape is less encouraging. Non-defense aircraft and parts orders plummeted 32.4% in October, dragging down overall durable goods orders by 2.2%. This volatility underscores the sensitivity of the sector to policy-driven uncertainties, such as tariffs on imported goods, which have constrained manufacturing activity. For instance, orders for computers and electronic products-a key indicator of tech sector health-declined, while electrical equipment orders also weakened. Analysts attribute these declines to high borrowing costs and global market volatility, which have dampened demand in cyclical industries.

Historical Context: A Leading Indicator with Caveats

Core durable goods orders have long served as a leading indicator for capex and manufacturing health. During the 2008 Global Financial Crisis, these orders fell nearly 40% between late 2007 and early 2010, foreshadowing the collapse in business investment and consumer demand. More recently, the May 2025 surge of 16.4% in durable goods orders-driven by a 230% spike in nondefense aircraft orders-was followed by a 9.3% contraction in June, illustrating how policy-driven front-loading can distort trends.

This volatility complicates the interpretation of core durable goods orders. While a three-month average of core capital goods orders has shown resilience in 2025, headline figures remain erratic. For example, the restoration of bonus depreciation in tax policy has incentivized capex in the tech sector, particularly for data center construction. Yet, industries like agriculture and parts of manufacturing continue to struggle, reflecting uneven economic conditions.

Implications for Investors

The industrial sector's resilience hinges on its ability to adapt to structural shifts. Sectors benefiting from AI-driven demand, such as machinery and fabricated metals, appear well-positioned to sustain capex growth. Conversely, industries reliant on discretionary spending or global trade-like agriculture and electronics-face heightened risks. Investors should also monitor the interplay between policy decisions and market behavior. For instance, the front-loading of aircraft orders in May 2025, driven by anticipation of tariffs, demonstrates how short-term policy changes can create artificial demand spikes.

Moreover, the restoration of bonus depreciation-a tax incentive allowing businesses to deduct the full cost of qualifying assets in the year they are purchased-has provided a tailwind for capex in the tech sector. This policy, combined with long-term trends in automation and AI, suggests that certain industrial subsectors may outperform in a slowing economy. However, the broader manufacturing sector remains vulnerable to high interest rates and global supply chain disruptions.

Conclusion

Core durable goods orders remain a vital, albeit imperfect, leading indicator for capex and manufacturing health. While recent data highlights resilience in key industrial sectors, the broader economy's fragility-evidenced by declining orders in electronics and agriculture-cannot be ignored. Investors must navigate this duality by focusing on sector-specific fundamentals and multi-month trends rather than headline figures. As the Federal Reserve's policy trajectory and global trade dynamics evolve, the industrial sector's ability to adapt will determine its long-term prospects in a slowing economy.