US: Durable goods order April headline good, underlying details weak - Wells Fargo

According to analysts from Wells Fargo, durable goods orders increased much more than expected in April even after March’s gain was doubled in the revisions and “it might feel like manufacturing is doing well”, but is not.

Key Quotes:

“On the surface, the durable goods orders report for April makes a great first impression. The 3.4 percent surge in the headline was a larger increase than any of the 81 economists polled by Bloomberg had forecast. The surge in April came on the heels of an upward revision to March, which more than doubled the sequential increase for that month from 0.8 percent to 1.9 percent.”

“A look at the underlying details is less encouraging.The headline gain was largely attributable to a 64.9 percent pop in the volatile aircraft orders component. This is not to say that the gain was all aircraft, but the other categories which posted gains had mitigating factors.”

“Core capital goods shipments, which feed into business spending measures in the GDP report, increased 0.3 percent in April. However, the initially reported gain of 0.5 percent in March was revised down to a decline of 0.3 percent. This may mean a steeper decline in Q1 equipment spending when the second look at GDP prints tomorrow. We note, however, that an upward revision to defense orders for March may result in an offsetting upward revision to Q1 government spending.”

“The headwinds for manufacturing have abated but not gone away. The regional Fed surveys were not feeling the vibe of improvement in manufacturing. The various readings from the Federal Reserve Banks of Richmond, New York and Philadelphia all were in contraction territory for the month of May. On that basis, we are not expecting durable goods orders to continue to surge in coming months.”