US Durable Goods: Stronger than expected, some weak details - Wells Fargo
|According to analysts from Wells Fargo, the US February durable goods orders report showed a modest improvement in capex spending. They expect an improvement in business spending.
Key Quotes:
“For the second month in a row, durable goods orders came in stronger than expected, but disappointed in the details. Orders for long-lasting goods rose 1.7 percent in February (versus expectations for a 1.4 percent rise). In addition, orders in January were revised up and are now reported to have increased 2.3 percent (versus 2.0 percent previously).”
“Elsewhere, however, orders were less impressive. Orders for defense goods, which are also volatile from month to month, fell 8.3 percent amid falling aircraft orders. Potential cracks in the auto sector, which has been a bright spot in recent years, are beginning to emerge. Orders for vehicles & parts fell 0.8 percent and are nearly flat over the past year. The pullback in orders (and shipments over the past two months) is consistent with the softer sales environment since early this year. After falling the past three months, inventories, at least at the manufacturing stage, remain contained and should limit the near-term hit to production for motor vehicles & parts.
“Our preferred barometer of near-term business spending, nondefense capital goods orders ex-aircraft, posted the biggest miss in February. Orders for this component slipped 0.1 percent compared to expectations for a 0.5 percent gain. Still, core orders indicate stronger momentum for capital expenditures in the coming months, having risen at a 9.1 percent average annualized pace over the past three months—the fastest clip in two and a half years.”
“The strengthening in core orders of late still looks a bit weak when compared to softer data like the purchasing managers indices. Business optimism has been at cycle highs since the start of the year, but has yet to translate into commensurate strength in real activity. Nevertheless, we still look for business spending to improve in the coming months given the general strength of the survey data as well as the improvement in growth overseas and improving corporate profits.”
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