Economists expected U.S. durable goods orders to be weak in July, and the numbers released today delivered on target, sparking hope for future cuts to U.S. interest rates.

Durable goods orders dropped 0.6% in July. Excluding transportation, the decline was 1.4%. Capital goods orders dropped for the sixth month in a row, down 1.9%, and are now 17.6% lower on a year-over-year basis.

“The details of the report and the downward revision to June gave the impression of distinct weakness,” says BMO Nesbitt Burns. “Inventories dropped by another 0.6%, the sixth straight significant fall, but with the I/S ratio at 1.59 months’ supply, there is no end to the inventory correction.”

On a sector basis, fabricated metals are picking up, primarily thanks to the auto sector, and communications orders are up a bit, too. Semiconductors and computers are down again, which BMO calls, “another disturbing trend”.

“Orders continue to be one of the economy’s weakest demand sectors, indicating that manufacturing will remain under pressure going forward,” says BMO. “This report was weak, and is certainly consistent with the view that U.S. manufacturing is not on the mend. It dispels the view that a second-half recovery is developing and suggests that the Fed still has work to do.”