January Durable Goods Came in Better Than Expected

February 26, 2015

by Doug Short

The February Advance Report on January Durable Goods released today by the Census Bureau showed a bit of a bounce from the previous month. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in January increased $6.5 billion or 2.8 percent to $236.1 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 3.7 percent December decrease. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders increased 3.0 percent.

Transportation equipment, also up following two consecutive monthly decreases, led the increase, $6.0 billion or 9.1 percent to $72.1 billion.
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The latest new orders headline number at 2.8 percent was above the Investing.com estimate of 1.7 percent. This series is up 5.4 percent year-over-year (YoY). However, if we exclude transportation, "core" durable goods was up only 0.3 percent MoM. Without the volatile transportation series, the YoY core number was up 4.5 percent.

If we exclude both transportation and defense for an even more fundamental "core", the latest number was up 0.4 percent MoM and 4.0 percent YoY.

The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was up 0.6 percent MoM, the first rise after four consecutive months of decline, and up 4.2 percent YoY.

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.

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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.

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Here is an overlay with GDP — another comparison I like to watch.

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The next chart shows the percent change in Core Durable Goods (which excludes transportation) overlaid on the headline number since the turn of the century. This overlay helps us see substantial volatility of the transportation component.

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Here is a similar overlay, this time excluding Defense as well as Transportation (an even more "core" number).

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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.

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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.

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