New orders for durable goods increased 2.6% last month following an 8.9% drop during January that was somewhat shallower than initially reported. The gain outpaced Consensus expectations for a 1.0% increase, however, unlike the prior month's report covering activity in the factory sector, the details were not constructive.

During the last ten years there has been a 51% correlation between the y/y change in durable goods orders and the level of the ISM orders index.

A 26.0% rebound in aircraft & parts orders predominated last month's gain. It followed a 59.9% January plunge and was led by a 52.5% surge in nondefense (66.3% y/y) aircraft.

New orders for motor vehicles & parts fell for the fourth month in the last five and the 3.3% m/m decline was to the lowest level in nearly one year.

Less the transportation sector altogether, durable goods orders fell 1.3% following an upwardly revised 1.6% January increase. The decline disappointed Consensus expectations for a 1.1% increase.

Declines in orders were widespread during February. Electrical equipment orders fell 3.2% (+12.5% y/y) though the decline followed an 8.5% gain the month earlier which was quite a bit stronger than initially estimated. A 6.3% (+4.4% y/y) drop in machinery orders followed a 3.5% January slip while orders for fabricated metals fell 1.9% (+5.6% y/y) and primary metals also fell by 2.5% (+6.0% y/y). Orders for computers & electronic products rose 4.2% (2.9% y/y) though the y/y gain is well below the double digit increases of 2004 and 2005.

Orders for nondefense capital goods increased a scant 1.6% following the 19.8% plunge during January and orders less aircraft fell 2.3%. The January figures were little revised.

During the last ten years there has been an 87% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment & software from the GDP accounts.

Shipments of durable goods rose 0.2% after the 1.8% drop during January and less the transportation sector shipments rose 0.1% (8.3% y/y) following the 0.5% January increase.

Order backlogs rose 0.9% (17.0% y/y), again dominated by the strength in unfilled orders for aircraft & parts which rose 1.1% (39.3% y/y). Less transportation backlogs rose 0.5% (10.2% y/y). The ratio of backlogs to shipments outside of transportation increased moderately but remained near the middle of the range of the last two years.

Durable inventories fell 0.5% (+2.6% y/y) after a 1.0% January gain. Less transportation, the 0.4% (+2.8% y/y) February decline followed a 1.2% January surge. The inventory to sales ratio outside of the transportation sector fell to near the historic low.

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