Durable goods jumped 4.9% well over the Econoday Consensus Estimate. Aircraft led the way, but core capital goods bounced sharply as well. Curiously, the bond market let out a big yawn. Treasury yields fell, the opposite of what I expected when I saw the report.
Highlights
The factory sector bounced back strongly in January, indicated first by last week’s industrial production report and now by durable goods orders which are up a very strong 4.9 percent. Aircraft did add to the gain but when excluding transportation equipment, durable orders still rose 1.8 percent. And core capital goods orders, which had been weakening, bounced back strongly with a 3.9 percent gain.
Machinery posted big gains in the month especially for new orders as did computers and fabricated metals. Motor vehicles showed strength in both orders and shipments.
Total shipments jumped 1.9 percent in the month, though shipments of core capital goods, held down by prior weakness in orders, fell 0.4 percent to open the first quarter on a down note. But a positive in the report is a 0.1 percent dip in inventories which, together with the rise in shipments, pulls down the inventory-to-shipments ratio to a leaner 1.64 from 1.67. And unfilled orders, after contracting sharply in December, inched 0.1 percent ahead in January.
This report is healthy but January’s strength may prove to be a one-hit wonder for a sector that is getting hurt by weak exports and perhaps by slowing domestic demand. Early indications on February’s factory conditions have been uniformly disappointing including Monday’s manufacturing PMI and Tuesday’s report from the Richmond Fed.
Recent History
Indications on the factory sector have been weak but not the manufacturing component of the industrial production report where renewed strength in vehicles made for a rare gain in January. Durable goods orders for February are likewise expected to show rare strength, at least for the headline level where a 2.0 percent gain is expected. Ex-transportation orders, however, are seen unchanged. This report simply fizzled into year end with broad declines including for capital goods where weakness, tied to weak global demand and weak energy-related demand, points to lack of confidence in the outlook.
One Hit Wonder?
For a welcome change, I generally agree with the Econoday commentary.
This report was stronger than expected, but the bond market reacted as if the numbers were bad. Treasuries rallied across the board, with yields dropping. That’s another good reason to believe this strength will not last.
By the way, I was in a very remote section of Death Valley yesterday with no phone or internet, so was late in approving comments.
Mike “Mish” Shedlock
“but core capital goods bounced sharply as well.”
True, but that was seasonally adjusted month over month … and January a heavily adjusted month.
Not seasonally adjusted
December core capital good orders $70.505 billion. January $62.340 billion
For the entire year 2015 versus 2014 NSA core capital goods orders
2014 $856.385 billion
2015 $822.562 billion
-3.9%
Janaury 2016 versus January 2015 NSA core capital goods orders
2015 $65.184 billion
2016 $62.340 billion
-4.4%
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“Durable Goods Orders Jump 4.9% – One Hit Wonder?”
Wasn’t it here where I read that short-term economic figures, especially “corrected” ones, are just noise and it’s trends that count? Perhaps not. I read a lot.
Badwater Basin? Saline Valley and the Racetrack?
I took a regular car up to Aguereberry Point. Not the remotest of spots actually but not recommended for cars. It was a very rough ride. I was going 6 MPH for some time, averaging probably double that. One person got a flat going up there. Had he not had a full-sized spare, he would not have made it out. Stayed up after sunset.
I’m staying at Stovepipe Wells and there is no internet service or wireless phone service. They still have pay phones. Right now I am typing from a Furnace Creek restaurant. My phone does work here and I am connected to the internet through my phone. Most of my posts for the last week have been from the bar at Furnace Creek (at night), or the adjacent buffet in the morning or early afternoon.
Mish
I would like to get to the racetrack – that is really remote. But 27 miles of rough deadpan and a long drive just to get to the deadpan – I probably won’t make it.
pentagon rampin up for dual Taliban, isis massive spring offensive, if your a war profiteer,your cash register is hummin
I said that a couple of weeks ago. Most buyers of durable goods hold off from July to December then rush to take delivery by dec 31st. Then the sales managers book half the sales in January thru February to help the sales people with their payroll taxes and Ira accounts in april.
Sent from my iPhone
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