U.S. Durable Goods Orders Show 3rd Drop In Four Months

by Ike Obudulu Posted on December 21st, 2018

Washington, D.C., USA: Orders placed with U.S. factories for business equipment fell in November, missing forecasts for an increase and adding to signs that demand is slowing amid risks from the trade war with China.

Non-military capital-goods orders excluding aircraft — a proxy for business investment — dropped 0.6 percent, after an upwardly revised 0.5 percent increase the prior month, Commerce Department figures showed Friday.

The economists survey median called for a 0.2 percent gain. Bookings for all durable goods, a broader measure of items meant to last at least three years, rebounded by less than expected.

The third decline in four months for business-equipment orders may add to concern — reflected in plunging stock markets — that corporate investment and factory activity are at risk of slipping into a more pronounced slowdown. The tumble in oil prices may also be weighing on energy-industry spending.

Figures used to calculate gross domestic product also showed a loss of momentum: Shipments of non-military capital goods excluding aircraft fell 0.1 percent, also missing estimates for a gain, after an upwardly revised increase.

Federal Reserve policy makers this week lowered their projected path of interest-rate hikes as companies grapple with uncertainty on tariffs, at a time the boost from tax cuts is set to fade.
The broader durable-goods numbers reflect swings in the volatile transportation category, with rebounds in orders for both civilian and military aircraft and parts. Separate data had showed Boeing Co.’s aircraft orders surged in November from the prior month.

A separate report Friday from the Commerce Department showed third-quarter GDP grew at a 3.4 percent annualized rate, revised from 3.5 percent and still amounting to the fastest two-quarter growth performance since 2014. That reflected downward adjustments to consumer spending and net exports, which was pegged at the biggest drag since 1984.

November’s three-month annualized gain for business-equipment shipments slowed to 1.9 percent from 4.2 percent, while for orders it turned to a 0.2 percent drop after a 3.5 percent increase, indicating a reversal of momentum.

Durable-goods orders rose 0.8 percent following a 4.3 percent decline. Excluding transportation-equipment demand, which is volatile, orders fell 0.3 percent. Bookings for civilian aircraft and parts rose 6.7 percent; defense capital-goods orders climbed 15.4 percent, the most since August.

Orders for machinery fell the most since March, and they also declined for electrical equipment, appliances and components as well as motor vehicles and parts. Primary metals, fabricated metal products and communications equipment showed gains.

The GDP report showed nonresidential fixed investment — which includes spending on equipment, structures and intellectual property — grew at an unrevised 2.5 percent pace in the third quarter. That followed a second-quarter advance of 8.7 percent.

November data on personal income, spending and inflation, due at 10 a.m. on Friday, will provide a fuller picture of how the economy performed during the month.

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.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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