US Durable Goods Orders: Not nearly as good as it seems – Wells Fargo

Data released on Tuesday, showed Durable Goods Orders rose 2.4% in December, above the 0.5% increase expected, however, the report contained negative numbers and revisions. Ex-aircraft, capital goods orders declined 0.9% and signal business spending is set to remain weak in the coming quarters, argued analysts at Wells Fargo. 

Key Quotes: 

“Total orders increased 2.4%, well above the consensus expectation for a 0.4% gain, but a number of factors take the shine off the increase. For starters, last month’s 2.1% decline was revised down to an even worse 3.1% fall. Moreover, the beat came entirely from defense orders, with private business spending continuing to flounder.”

“For a second straight month, defense orders roiled the headline, this time leaping more than 90%. That more than reversed last month’s plunge and drove orders to the second highest level this cycle. Defense shipments, on the other hand, fell for a second straight month (down 2.5% in December) and suggest that the surge in orders will not be in time to fend off a slowdown in government spending in Q4’s GDP report, to be released on Thursday.”

“Excluding the defense sector, orders fell 2.5% and have not notched a gain since July.”

“Outside of aircraft, private capital goods orders also remained weak. Core capital goods orders fell 0.9% in December, while November is now reported to have barely notched a gain (up only 0.1%).”

“Business spending is far from collapsing, however, and today’s report offers additional evidence that equipment outlays are at least beginning to steady.”