October Durable Goods Orders Disappoint
The November Advance Report on October Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:
New orders for manufactured durable goods in October decreased $4.6 billion or 2.0 percent to $230.3 billion, the U.S. Census Bureau announced today. This decrease, down following two consecutive monthly increases, followed a 4.1 percent September increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders decreased 1.3 percent.
Transportation equipment, also down following two consecutive monthly increases, led the decrease, $4.6 billion or 5.9 percent to $73.0 billion. This was led by nondefense aircraft and parts, which decreased $3.0 billion. Download full PDF
The latest new orders number at -2.0% percent was close to the Investing.com forecast of -1.9 percent. Year-over-year new orders are up 5.3 percent.
If we exclude transportation, "core" durable goods came in negative MoM at -0.1 percent but up 4.3 percent YoY. Investing.com was looking for a 0.5 percent MoM increase.
If we exclude both transportation and defense, durable goods came in at 1.2 percent MoM and up 5.4 percent YoY.
Core Capital Goods posted the second consecutive negative month, down 1.2 percent in October following a decline of 1.4 percent in September. The October YoY number is a positive 3.6 percent.
The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two. Over the past year, the market has certainly pulled away from the durable goods reality, something we also saw in the late 1990s.
An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.
Here is an overlay with GDP — another comparison I like to watch closely.
The next chart shows the percent change in Core Durable Goods (which excludes transportation) overlaid on the headline number.
Here is a similar overlay, this time excluding Defense as well as Transportation (an even more "core" number).
This last chart is an overlay of Core Capital Goods on the larger series. This takes a step back in the durable goods process to show Manufacturers' New Orders for Nondefense Capital Goods Excluding Aircraft.
In theory the durable goods orders series should be one of the more important indicators of the economy's health. But its volatility and susceptibility to major revisions of the previous monthly data suggest caution in taking the data for any particular month too seriously.