U.S. Durable Goods Orders Trailed Forecasts in October

by Ike Obudulu Posted on November 21st, 2018

Washington, D.C., USA: Orders placed with U.S. factories for business equipment were weak in October for a third straight month, another sign that momentum is cooling amid risks from the trade war with China.

Non-military capital goods orders excluding aircraft — a proxy for business investment — were little changed after a 0.5 percent decline in September that was worse than previously reported, Commerce Department figures showed Wednesday. The median forecast in economists survey called for a 0.2 percent gain.

The results, coming on the heels of other mixed reports on manufacturing, may fuel concern that capital spending is slowing more sharply than anticipated amid tariff-related uncertainty and a fading boost from tax cuts. Economists had already forecast a cooling in gross domestic product growth from the second and third quarters.

The figures compare with comments Tuesday by White House economic adviser Larry Kudlow, who said business equipment was booming again following softness in the third quarter. Previously released data showed that business-equipment investment rose during the period at the slowest pace in two years.

The broader measure of orders for durable goods, or items meant to last at least three years, fell 4.4 percent, also worse than expected and weighed down by the volatile transportation category. Orders for civilian aircraft dropped 21 percent, while military aircraft plunged 59 percent. Separate data showed Boeing Co.’s aircraft orders cooled in October.

Shipments of non-military capital goods excluding aircraft, a measure used to calculate GDP, rose 0.3 percent in October, matching the survey median. The prior month’s reading was revised to a decline of 0.2 percent from 0.1 percent. The three-month annualized gain for shipments slowed to 4 percent from 7.2 percent, while for orders it cooled to 2.9 percent from 8.1 percent, illustrating the loss of momentum.

Excluding transportation-equipment demand, which is volatile, durable-goods orders rose 0.1 percent in October, below projections, after a 0.6 percent decline that was worse than previously reported figures.
Orders for primary metals fell the most in a year, while machinery had the biggest drop since March.

Categories showing gains included computers and electronic products, up the most since April, while electrical equipment, appliances and components had the largest increase in orders in two years. Motor vehicles and parts orders rose 0.2 percent following a 0.9 percent gain.

Defense capital-goods orders fell 16.6 percent following a 16.3 percent decline in September. Previously released data showed that over the second and third quarters, federal defense spending rose at the fastest back-to-back pace since 2009.

Durable goods inventories were unchanged in October following a 0.8 percent increase.

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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