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Durable Goods Report: Mixed Bag In February

  • Written by Syndicated Publisher No Comments Comments
    March 28, 2014

    The headline number beat expectations, but Core Capital Goods New Orders (Nondefense Ex Aircraft) dropped 1.3%.

    The March Advance Report on February Durable Goods was released yesterday morning by the Census Bureau. Here is the Bureau’s summary on new orders:

    New orders for manufactured durable goods in February increased $5.0 billion or 2.2 percent to $229.4 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 1.3 percent January decrease. Excluding transportation, new orders increased 0.2 percent. Excluding defense, new orders increased 1.8 percent.

    Transportation equipment, also up following two consecutive monthly decreases, led the increase, $4.6 billion or 6.9 percent to $71.4 billion. This was led by nondefense aircraft and parts, which increased $1.8 billion. Download full PDF

    The latest new orders number came in at 2.2% percent month-over-month, which was a significantly better than the Investing.com forecast of 1.0 percent. Year-over-year new orders were up only 0.2 percent.

    If we exclude transportation, “core” durable goods came in at 0.2 percent MoM and only 1.5 percent YoY. Investing.com had a forecast a higher 0.3 percent.

    If we exclude both transportation and defense, durable goods were down 0.5% MoM but up 2.6 percent YoY.

    The Core Capital Goods New Orders number (captial goods used in the production of goods or services) was down 1.3 percent MoM. The YoY number was up 2.2 percent.

    The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two. Over the past year, the market has certainly pulled away from the durable goods reality, something we also saw in the late 1990s.

     

     

    An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

     

     

    Here is an overlay with GDP — another comparison I like to watch.

     

     

    The next chart shows the percent change in Core Durable Goods (which excludes transportation) overlaid on the headline number.

     

     

    Here is a similar overlay, this time excluding Defense as well as Transportation (an even more “core” number).

     

     

    This last chart is an overlay of Core Capital Goods on the larger series. This takes a step back in the durable goods process to show Manufacturers’ New Orders for Nondefense Capital Goods Excluding Aircraft.

     

     

    In theory the durable goods orders series should be one of the more important indicators of the economy’s health. But its volatility and susceptibility to major revisions of the previous monthly data suggest caution in taking the data for any particular month too seriously.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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