U.S. Durable Goods Orders Fall For 2nd Consecutive Month

by Ike Obudulu Posted on October 25th, 2018

Washington, D.C., USA: New orders for manufactured durable goods declined in September for a second month, a sign momentum in capital investment has paused as global trade concerns persist, Commerce Department figures showed Thursday.

The report showed declines in bookings for electrical equipment, appliances and components, while orders for computers and electronic products were unchanged. Categories with gains included motor vehicles and parts, as well as machinery.

Uncertainty over trade is already cutting into companies’ expected profits and expansion plans, making it a risk to the pace of economic growth. Companies are coping with higher prices for steel and aluminum, and some firms cite tariffs as an investment and growth concern.

The data cover orders and shipments affected by tariffs placed on goods by the U.S. and China in July and August. In late September, the U.S. imposed a 10 percent levy on $200 billion in Chinese goods, rising to 25 percent Jan. 1, and Trump has threatened fees on a further $267 billion of merchandise.

While business spending has been boosted this year by corporate tax cuts and buoyed by consumption, the latest figures suggest it might be cooling toward the end of the year. Even so, analysts project a 3.3 percent annualized pace of GDP growth in the third quarter, resulting in the best back-to-back periods since 2014; the figures are due Friday.

Bookings for civilian aircraft and parts, typically a volatile category, fell 17.5 percent in September following a 63.7 percent gain in the prior month, according to the report. Meanwhile, orders for defense aircraft and parts more than doubled. Boeing Co. previously said that the planemaker received 65 orders in September, down from 99 in August.

Excluding transportation-equipment demand, durable-goods orders rose 0.1 percent (forecast 0.4 percent rise) after a 0.3 percent gain (revised from unchanged)

Orders for machinery rose 0.8 percent; bookings for motor vehicles and parts were up 1.3 percent

Bookings for fabricated metal products dropped 0.7 percent; electrical equipment, appliances and components fell 0.5 percent

Computers and related products orders fell 0.4 percent; communications gear down 0.1 percent

Defense capital-goods orders fell 14.3 percent, biggest drop since March
Durable-goods inventories rose 0.7 percent

A separate Labor Department report Thursday showed filings for unemployment benefits ticked up last week on increases in Florida and Georgia following destruction by Hurricane Michael this month. Initial jobless claims rose 5,000 to 215,000, matching the median estimate in a Bloomberg survey of economists.

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report

The Manufacturers’ Shipments, Inventories, and Orders (M3) survey or the Durable Goods Orders Report provides broad-based, monthly statistical data on economic conditions in the domestic manufacturing sector. The survey measures current industrial activity – change in the total value of new purchase orders placed with manufacturers for durable goods – and provides an indication of future business trends.

The data can be volatile and revisions via the Factory Orders report released about a week later are not uncommon. Moving averages should be used to identify long-term trends.

Durable goods are generally defined as higher-priced capital goods orders with a useful life of three years or more

Durable goods are defined as hard products (capital goods) having a life expectancy of three years or more years, such as automobiles, computers, appliances, airplanes, semiconductor equipment and turbines.

The report is issued monthly by the Census Bureau of the U.S. Department of Commerce.

‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.  A weak durable goods report will also generally lead to a decline on the bond market.

Core Durable Goods Orders Report

Core Durable Goods Orders report measures change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items.

Orders for aircraft are volatile and can severely distort the underlying trend. The Core data is therefore thought to be a better gauge of purchase order trends;

Why Markets Care About Durable Goods Orders Report

It is  a leading indicator of production – rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.

A durable goods report showing an increase in orders is a sign that the economy is trending upwards. This can be a sign of gains in the stock market.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.

The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology, manufacturing and transportation.

It provides forward-looking data such as inventory levels and new business, which count toward future earnings.

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