The headline durable goods orders for February beat the Econoday consensus and January was revised higher as well.
But once again, strength was due to aircraft orders. Core capital goods declined 0.1% vs an expectation of a 0.5% gain.
Aircraft has been giving a significant boost so far this year to durable goods orders which otherwise are soft. Durable goods orders jumped 1.7 percent in February to beat Econoday’s consensus by 2 tenths. The data include an upward revision to January which now stands at a very strong 2.3 percent. But when excluding transportation equipment, which is where aircraft are tracked, durable orders slow to a 0.4 percent February gain which is well under the 0.8 percent consensus.
The weakest part of the report is perhaps the most important part, that is core capital goods (nondefense ex-aircraft) where orders slipped 0.1 percent in February vs expectations for a 0.5 percent jump and following January’s revised 0.1 percent gain. This points to continued weakness in business investment and eventual trouble for GDP. Yet for the first quarter, core shipments in January and February, which are inputs into GDP, are a net positive, as a 1.0 percent February gain offsets a 0.3 percent January dip. Also unfilled orders for core capital goods are building, up 0.2 percent following gains of 0.5 and 0.4 percent in the two prior months.
Total unfilled orders for durables, however, are unchanged and follow a long string of declines. Inventory growth is modest at 0.2 percent with total shipments up 0.3 percent which keeps the inventory-to-shipments ratio unchanged at a stable 1.61.
Durables activity is improving but the strength has been tied largely to aircraft where sustained month-to-month gains are uncertain. And the strength also does not include new orders for capital goods. The major spikes for advance manufacturing readings have yet to translate to similar gains for government data.
Durable Goods Orders
Durable Goods Orders and Shipments
The above table condensed and highlighted starting from Census.Gov.
- Shipments feed into GDP so the immediate effect of the report should be minimal.
- Once again aircraft fueled the report, but aircraft orders have very long lead times and are subject to cancellation.
- Motor vehicles and parts (shipments and new orders) are both in the red.
- Core capital goods, a measure of future expansion of productive capacity, is flat over the last two months, much weaker than expected.
Despite the nice sounding headline numbers, this was actually a weak report when viewing the details.
Autos, which account for about 20% of retail sales are sounding alarm bells.
- Ally Financial Issues Profit Warning Over Used Car Prices: Jamie Dimon Says “It’s Not Systemic”
- Used Car Prices Plunge Most in Any Month Since 2008, Only 2nd February Decline in 20 Years
- Consumer Sentiment Statistical Noise: Modern Day Snake Oil
- Industrial Production Flat, Manufacturing Jumps: Another Weather-Related Phenomenon?
The regional manufacturing reports have been upbeat. Actual measurements are something else.
Mike “Mish” Shedlock