Q1 equipment spending still intact despite dreary durable goods report

Summary

The 2.2% decline in February durable goods orders can only partly be blamed on a big drop in aircraft orders. Bookings elsewhere were largely lackluster. Still, with some upward revisions to prior data and a better-than-expected outturn for core capital goods shipments, equipment spending is largely tracking with our Q1 forecast for a 5.7%annualized growth rate.

Broad weakness in durables report

The headline 2.2% decline in durable goods orders for February was largely a function of the 30.4% decline in civilian aircraft orders. Orders for motor vehicles & parts fell 0.5%, the second straight monthly decline.

Transportation categories like aircraft and autos are notoriously volatile even in ordinary times. That has not improved amid a global supply chain crisis. Autos and aircraft, with their multiple parts and various stages of fabrication, are particularly vulnerable to kinked supply lines and long wait times for parts.

Excluding the transportation sector, however, orders were still down by a more mild 0.6% (chart). It was the first decline in ex-transportation orders since February of last year. Among the-transport categories that posted gains in orders in February were defense capital goods (up 14.2%), computers & related products (up 4.4%) and “all other durable goods” (up 0.8%). This final catch-all category captures almost a fifth of all orders (17%), so the gain shouldn't be dismissed out of hand. Still, declines in orders of primary and fabricated metals, as well as machinery and communications equipment, are not terribly encouraging for future capital spending plans.

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