Rise in US factory orders beats expectations in July

• Orders increased 6.5% year-over-year in July, led by a 12.7% surge in civilian aircraft orders, while computer and electronic product orders fell 1.1% month-over-month but remained up 14.3% annually
• Non-defense capital goods orders excluding aircraft (a key measure of business spending plans) were unchanged in July, revised down from an initially reported 0.2% increase
• The six-month conflict with Iran is pressuring supply chains and keeping input prices elevated, with manufacturers in an ISM survey describing the economic environment as 'annoying' due to war-related costs and import tariffs

Summary: US Factory Orders Rise Above Expectations in July

Key Findings:

U.S. factory orders increased 0.9% in July, surpassing economist forecasts of 0.6%, following a revised 0.2% decline in June. Year-over-year orders advanced 6.5%, according to the Commerce Department's Census Bureau report released September 2.

Sector Performance:

The rebound was primarily driven by a 12.7% surge in civilian aircraft and parts orders. Other gains included motor vehicle bodies and parts (+0.4%) and machinery (+0.8%). However, computer and electronic product orders fell 1.1%, though remained up 14.3% year-over-year. Electrical equipment orders declined 0.3%.

Business Investment Indicators:

Orders for non-defense capital goods excluding aircraft—a key measure of business equipment spending—were unchanged in July, revised down from the initially reported 0.2% increase. Core capital goods shipments rose 1.2%, slightly below the preliminary 1.4% estimate.

Market Context:

Manufacturing represents 9.4% of the U.S. economy and is benefiting from artificial intelligence infrastructure buildout. However, challenges persist from the six-month U.S.-Israeli conflict with Iran, which is straining supply chains and elevating input costs. An Institute for Supply Management survey indicated manufacturers reported higher prices in August due to the war and import tariffs.

Outlook:

Analysts suggest the slowdown in core capital goods orders is likely temporary, supported by a surge in capital goods imports in July and continued AI-driven business equipment spending. The AI investment boom is fueling both imports and domestic business expenditures on equipment.