Durable Goods Orders Again Disappoint
April 26, 2016
by Doug Short
The Advance Report on Manufacturers’ Shipments, Inventories and Orders released today gives us a first look at the latest durable goods numbers. Here is the Bureau's summary on new orders:
New orders for manufactured durable goods in March increased $1.8 billion or 0.8 percent to $230.7 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 3.1 percent February decrease. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders decreased 1.0 percent.
Transportation equipment, also up two of the last three months, drove the increase, $2.2 billion or 2.9 percent to $76.0 billion. Download full PDF
The latest new orders number at 0.8% month-over-month (MoM) was below to the Investing.com estimate of 1.8%. This series is down 2.5% year-over-year (YoY). If we exclude transportation, "core" durable goods came in at -0.2% MoM, which was below the Investing.com estimate of 0.5%. The core measure is down 1.4% YoY.
If we exclude both transportation and defense for an even more fundamental "core", the latest number is -2.9% MoM and -2.6% YoY.
Core Capital Goods New Orders (nondefense capital goods used in the production of goods or services, excluding aircraft) is an important gauge of business spending, often referred to as Core Capex. It came in flat MoM and -2.4% YoY.
The latest stats were accompanied by downward revisions across the board for the February orders.
For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.
The next chart shows year-over-year percent change in Durable Goods. We've highlighted the value at recession starts and the latest value for this metric.
The next chart shows year-over-year percent change in Core Durable Goods (i.e., excluding transportation).
The next chart shows the growth in Core Durable Goods overlaid on the headline number since the turn of the century. This overlay helps us see substantial volatility of the transportation component.
Here is a similar overlay, this time excluding Defense as well as Transportation (an even more "core" number).
Core Capital Goods
The next two charts take a step back in the durable goods process to show Manufacturers' New Orders for Nondefense Capital Goods Excluding Aircraft, a series often referred to as Core Capex. Here is the year-over-year Core Capex.
The next chart is an overlay of Core Capital Goods on the larger series showing the percent change of the two since the turn of the century.
In theory the durable goods orders series should be one of the more important indicators of the economy's health. However, its volatility and susceptibility to major revisions suggest caution in taking the data for any particular month too seriously.