Today’s headline durable goods number looks good. The details are another matter.
The Census Bureau’s Durable Goods Report show orders rose 0.8%. The good news pretty much stops there.
Low Lights
Excluding transportation, new orders rose 0.1 percent.
Excluding defense, new orders fell 0.6 percent.
Core Capital Goods orders fell 0.1%
Econoday Discussion
A doubling in orders for defense aircraft headlines a better-than-expected 0.8 percent rise in September durable goods orders. Yet when excluding transportation equipment and with it the gain for defense aircraft, orders managed only a 0.1 percent increase which is 3 tenths shy of expectations.
Another weakness in the report is a 0.1 percent decline in core capital goods orders (nondefense ex-aircraft) which is pointing to a flattening in business investment. And shipments for core capital goods have come to a standstill, unchanged the last two months which will be negatives for tomorrow’s GDP data on business investment.
Turning back to orders, another weakness is a marginal rise for primary metals which had been surging in prior months on tariff effects. Still, year-on-year growth in metal orders is near 20 percent which tops other yearly readings that are in the mid-to-high single digits to low double digits.
And there is plenty of strength in September’s data including a second straight very large build in unfilled orders, at 0.8 and 0.9 percent the last two months. Part of this build reflects backed-up orders for primary metals which have swelled by 1.1 and 1.3 percent the last two months and which offer strong evidence of tariff-related pre-buying.
Inventories rose a sharp 0.7 percent in September following a rare draw of minus 0.2 percent in August. September’s build will be a plus for third-quarter GDP. And relative to shipments, which rose 1.3 percent, inventories are actually more lean, at an inventory-to-shipments ratio of 1.60 vs 1.61 in data that point to the constructive need to build inventories further.
This report is mixed and really doesn’t show accelerating strength. But a key takeaway is year-on-year growth, at 7.9 percent for overall orders and 5.9 percent ex-transportation. Monthly volatility aside, these gains offer solid evidence of the strength of the nation’s factory sector.
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