Familiar struggles and glimmers of strength in Durable Goods

Summary

Durable goods orders came in stronger than anticipated in April, but with caveats, like stripping out defense spending and recognizing relatively concentrated orders activity. Today's report points to some familiar struggles on the industrial side of the economy and a few glimmers of strength.

A thorny mess, but signs of stabilization

Capital costs are still high, and some industries are still feeling that pressure, but the message from today's durable goods report is that the sector is holding up and is on firmer ground than it was just a few months ago.

The durable goods report is subject to big swing factors such as aircraft (both civilian and defense orders) as well as other big-ticket items such as motor vehicles. There are also revisions to consider. The April report had all of these components, and with the right exclusions or consideration given to revisions you can draw various conclusions. Yes, orders were up, but the increase is zero if we back out defense spending. Orders were up, but not enough to offset downward revisions to prior data.

Start with the major components: headline durable goods orders defied expectations for a dip and actually posted a 0.7% monthly gain. Prior months' figures were revised lower taking some of the zip out of the better-than-expected outturn, but the data show how the mood has shifted over the past few months. Consider where we were in January when durables had declined in five out of the previous seven months and fast-forward to today where April marks the third consecutive monthly increase in durable goods orders (chart). Shipments are still reflecting the earlier weakness in bookings as is evident in the fact that core capital goods shipments are still down in two of the past three months. Yet the 0.4% increase in core shipments (nondefense capital goods excluding aircraft) in April marks the second largest monthly pickup since last summer.

Every major category of durables other than nondefense aircraft saw an increase in orders last month. But we see two industries lending some support to American manufacturing in recent months: autos and high tech.

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