Durable goods orders fell by 3.6% in April. Most economists blame a slowdown in Japan in the wake of the tsunami and earthquakes.

Please consider Durable Goods Orders in U.S. Decline by Most in Six Months

Orders for U.S. durable goods dropped more than forecast in April, reflecting a slump in aircraft demand and disruptions in supplies of auto parts stemming from the earthquake in Japan.

The 3.6 percent decrease in bookings for goods meant to last at least three years was the biggest since October and followed a 4.4 percent surge in March that was larger than previously estimated, a Commerce Department report showed today in Washington. Economists projected a 2.5 percent April decline, according to the median forecast in a Bloomberg News survey.

Bookings for Boeing Co. (BA) aircraft slumped last month and vehicle makers slowed production due to a components shortage that may be short-lived as Japanese factories recover. At the same time, rising overseas sales at manufacturers such as Deere & Co. (DE) and General Electric Co. (GE) indicate the industry will keep driving the U.S. expansion.

Chicago-based Boeing, the world’s largest aerospace company, said it received two orders last month compared with 98 in March. Industry data may not correlate precisely with the government statistics on a month-to-month basis.

Today’s report showed a 30 percent slump in civilian plane orders and an 8.9 percent drop in military aircraft. Bookings excluding military equipment fell 3.6 percent in April.

A recurring pattern of declines in equipment orders at the start of a quarter probably also helped depress the April figures, economists have said.

Demand fell for machinery, fabricated metals, electrical equipment and computers and related products, today’s report showed.

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1.7 percent after rising 3.7 percent in the prior month.

Disruptions related to the March earthquake and tsunami in Japan led to a plunge in U.S. automobile output, causing industrial production to stall in April, a Federal Reserve report showed last week.

Today’s report showed bookings for motor vehicles and parts dropped 4.5 percent in April, the most since August 2010, after a 6.6 percent gain.

Economists at JPMorgan Chase & Co. in New York yesterday cut their second-quarter U.S. growth projection to 2.5 percent from a previous estimate of 3 percent.

“The main factor behind our revision is weaker output of the auto vehicle sector,” JPMorgan’s chief U.S. economist Michael Feroli wrote in an e-mail. Part of the slowdown in production is due to supply disruptions caused by the disaster in Japan, he said.

Hook, Line and Sinker

Nearly everyone seems to buy the “Japan caused a global slump” theory.

Certainly Japan did not help matters but what about the possibility the pent-up demand for autos and planes is toast?

Germany slowed, France slowed, the UK slowed, the US services ISM slowed. Australia slowed. China has slowed. Is that all Japan related?

If it is entirely Japan related, there be a sharp sustained rebound in autos, planes, and other durables. Watch inventories vs. sales closely.

I suspect companies may ramp up production on the belief this slowdown is Japanese related when the reality is pent-up demand for goods has been exhausted.

Mike “Mish” Shedlock
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