Durables and claims signal a compelling start to 2021

Summary

The January durable goods report, packed with upside surprises, signals manufacturingand equipment spending are of to a strong start to 2021, and indicates that it is notjust the consumer propelling a pickup in growth. The dip in jobless claims, however, mayoverstate improvement as stormy weather reduces visibility into the current state of thelabor market. GDP revisions for Q4-2020 were minimal.

It's go-time for manufacturing

In the latest lights-out print for a January economic indicator,durable goods orders shot up 3.4%, more than three times theexpected gain of 1.1%. The strong start to the year comes on theheels of a revision to December's figures, which more than doubledthe initially reported increase of 0.5% to 1.2%.

In terms of current-quarter GDP expectations, the more significanttake-away is the fact that nondefense capital goods shipments rose3.5%, setting up Q1 equipment spending for another solid gain.Civilian aircraft lifted both orders and shipments as Boeing beganlong-delayed deliveries after addressing the problem's with its key737-MAX. According to Boeing's reported data, the 737-MAXaccounted for 21 of the 26 deliveries in January and 27 of the 39deliveries in December. We look for these deliveries to be additiveto the equipment spending line for GDP throughout this year.

More than just aircraft

It is more than just aircraft driving durable goods activity. Industrialspending categories such as primary and fabricated metals sawgains in both orders and shipments. The gains were not limited toheavy industry, however, with computers and related products, aswell as transportation equipment, posting gains in both orders andshipments.

Including January's gain, the overall level of durable goods hascrested above its pre-recession peak for the first time. The levelof durable goods actually peaked well before the pandemic in September 2018. The escalation of the trade war throughoutmost of 2019, the grounding of Boeing's best-selling model andworries about late-cycle dynamics at the time contributed to anon-again, of-again pattern in durable goods orders with the overalldownward trend in the year that preceded the pandemic.

With demand underpinned by more than just a strong consumer,today's report for January durable goods sets the tone for what weexpect to be a strong year for manufacturing and business fixe dinvestment.

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