U.S. Durable Goods Orders Slip In February, Shipments Unchanged

by Ike Obudulu Last updated on April 25th, 2019,

Washington: New orders for key U.S.-made capital goods unexpectedly fell in February and shipments were unchanged, but data for January was revised slightly higher. The Commerce Department said on Tuesday orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1 percent, pulled down by declining demand for machinery and computers and electronic products.

Data for January was revised slightly up to show these so-called core capital goods orders increasing 0.9 percent instead of rising 0.8 percent as previously reported.

Economists polled by Reuters had forecast core capital goods orders unchanged in February. Core capital goods orders increased 2.6 percent on a year-on-year basis.

Shipments of core capital goods were unchanged in February after an upwardly revised 1.0 percent rise in the prior month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

They were previously reported to have gained 0.8 percent in January. The February report was delayed by a 35-day partial shutdown of the federal government that ended on Jan. 25. The March report will be published on April 25 as scheduled.

The report on Tuesday came on the heels of mixed February retail sales and construction spending reports, as well as January business inventory data, that boosted first-quarter GDP forecasts.

Growth estimates for the first-quarter range from as low as a 1.2 percent annualized rate to as high as a 2.1 percent pace. The economy grew at a 2.2 percent pace in the fourth quarter, with growth in business spending on equipment accelerating.

The economy is losing momentum as the stimulus from a $1.5 trillion tax cut fades. A trade war between the United States and China, slowing global economies and uncertainty over Britain’s exit from the European Union are other factors that are also hurting activity.

In February, orders for machinery dropped 0.3 percent after rising 2.0 percent in January. Energy firms have been reducing the oil rigs operating, despite a rebound in oil prices, to focus on growing earnings.

Orders for computers and electronic products fell 0.3 percent. Orders for electrical equipment, appliances and components rose 1.0 percent in February after increasing 1.3 percent in the prior month

There were also increases in orders for primary metals and for fabricated metal products in February.

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, tumbled 1.6 percent in February. That reflected a 4.8 percent drop in demand for transportation equipment. Durable goods orders gained 0.1 percent in January.

Orders for motor vehicles and parts dipped 0.1 percent in February. Orders for non-defense aircraft plunged 31.1 percent after rising 9.2 percent in January.

Boeing reported on its website that it had received only five aircraft orders in February compared to 46 in January.

The fewer orders are probably not related to the Ethiopian Airlines crash in early March, which led to the grounding of Boeing’s 737 MAX aircraft.

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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