Durable goods rose 0.4 percent in October, but the rise was largely supported by a jump in defense aircraft. Core capital goods orders fell and shipments point toward a slower pace of equipment spending in Q4.
Little to Be Thankful for in the Durable Goods Report
Orders for durable goods came in stronger than expected in October, advancing 0.4 percent. The better turnout also came on the heels of a notquite-as-bad September, where orders were revised to show a decline of 0.9 percent rather than the previously reported fall of 1.3 percent. But beyond the headline, there were few details for which to be thankful.
The positive outturn for this month’s headline was largely attributable to a 45.3 percent jump in aircraft orders for the defense sector, hardly a bellwether of near-term demand. Excluding defense, orders fell 0.6 percent.
With the jump in defense aircraft orders, transport orders were up 3.4 percent. After seasonal adjustment factors, orders for civilian aircraft were roughly flat on the month, but orders for the larger motor vehicles & parts sector rose 0.3 percent. This uptick is mildly encouraging given that we are now beyond the months in which the timing and durations of model-year changeovers distorted recent reads on auto orders.
Excluding the transportation sector, orders fell 0.9 percent. Weakness was broadly based and hints at some possible effects from lower commodity prices creeping into investment decisions, as primary metals, fabricated metals and machinery were all negative. Discouragingly, core capital goods orders, which exclude defense and civilian aircraft, fell 1.3 percent for the second-straight month. The three-month average annualized rate of growth for this component has now slowed to 2.7 percent from 17.0 percent as recently as August. The slowdown stands in stark contrast from a number of the purchasing managers’ indices. The new orders component of the national ISM index has held above 60 for four consecutive months and would suggest a pickup in core orders. New orders in the Philadelphia F ed’s manufacturing index stood at a 25-year high in November, and while other November regional indices are not quite as robust, the orders components are all in positive territory.
Fourth Quarter Equipment Spending Off to a Weak Start
Shipments for durable goods orders inched up only 0.1 percent in the month. Core capital goods shipments, however, fell 0.4 percent and suggest growth in equipment spending will be hard pressed to beat Q3’s doubledigit pace in the fourth quarter.
Inventories for durables rose 0.5 percent in October, pushing the inventory-t0-sales ratio up to 1.65. The three-month average annualized rate slowed slightly during the month. This is the first piece of “hard” data for Q4 inventories and while still early in the quarter, it would not surprise us to see inventories provide little, if any support, to GDP growth in the current quarter.
Little to Be Thankful for in the Durable Goods Report
Orders for durable goods came in stronger than expected in October, advancing 0.4 percent. The better turnout also came on the heels of a notquite-as-bad September, where orders were revised to show a decline of 0.9 percent rather than the previously reported fall of 1.3 percent. But beyond the headline, there were few details for which to be thankful.
The positive outturn for this month’s headline was largely attributable to a 45.3 percent jump in aircraft orders for the defense sector, hardly a bellwether of near-term demand. Excluding defense, orders fell 0.6 percent.
With the jump in defense aircraft orders, transport orders were up 3.4 percent. After seasonal adjustment factors, orders for civilian aircraft were roughly flat on the month, but orders for the larger motor vehicles & parts sector rose 0.3 percent. This uptick is mildly encouraging given that we are now beyond the months in which the timing and durations of model-year changeovers distorted recent reads on auto orders.
Excluding the transportation sector, orders fell 0.9 percent. Weakness was broadly based and hints at some possible effects from lower commodity prices creeping into investment decisions, as primary metals, fabricated metals and machinery were all negative. Discouragingly, core capital goods orders, which exclude defense and civilian aircraft, fell 1.3 percent for the second-straight month. The three-month average annualized rate of growth for this component has now slowed to 2.7 percent from 17.0 percent as recently as August. The slowdown stands in stark contrast from a number of the purchasing managers’ indices. The new orders component of the national ISM index has held above 60 for four consecutive months and would suggest a pickup in core orders. New orders in the Philadelphia F ed’s manufacturing index stood at a 25-year high in November, and while other November regional indices are not quite as robust, the orders components are all in positive territory.
Fourth Quarter Equipment Spending Off to a Weak Start
Shipments for durable goods orders inched up only 0.1 percent in the month. Core capital goods shipments, however, fell 0.4 percent and suggest growth in equipment spending will be hard pressed to beat Q3’s doubledigit pace in the fourth quarter.
Inventories for durables rose 0.5 percent in October, pushing the inventory-t0-sales ratio up to 1.65. The three-month average annualized rate slowed slightly during the month. This is the first piece of “hard” data for Q4 inventories and while still early in the quarter, it would not surprise us to see inventories provide little, if any support, to GDP growth in the current quarter.
Recommended Content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.