US Durable Goods: Weakness reaches beyond just aircraft - Wells Fargo

Data released today showed that durable goods dropped 2.1% in April. Analysts at Wells Fargo, point out that while a 25.1% plunge in civilian aircraft orders weighed on the headline, the underlying details were not terribly encouraging. 

Key Quotes: 

“It is a matter of speculation as to when Boeing will have a fix in place for the 737 MAX and when shipments pick back up again. Most aerospace analysts expect this to be a matter of months, at which point we would expect to see headline durable goods orders boosted by aircraft for a few months.”

“Other key areas are also reflecting some of the slowing indicated by the April drop in the ISM index and in some of the regional Fed surveys. Notably, primary and fabricated metals have both experienced declines in two out of the past three months.”

“In addition to the pronounced volatility in global financial markets, the tariffs have been identified in the ISM report and in corporate earnings announcements as a factor negatively impacting profitability as well as creating supply chain headaches. Whether businesses are taking on additional inventory in anticipation of higher future costs or because they are concerned about product availability is unclear, but an inventory build is clearly under way. The inventory-to-shipments ratio rose to 1.67—the highest since July 2017.”