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Economy in Brief

U.S. Durable Goods Orders Up, But ...
by Tom Moeller March 27, 2006

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.

Macroeconomic News and Real Interest Rates from the Federal Reserve Bank of St. Louis can be found here.

NAICS Classification Feb Jan Y/Y 2005 2004 2003
Durable Goods Orders 2.6% -8.9% 8.1% 8.6% 9.5% 4.1%
    Excluding Transportation -1.3% 1.6% 6.4% 8.6% 11.7% 3.1%
Nondefense Capital Goods 1.6% -19.8% 9.4% 20.0% 11.0% 4.2%
 Excluding Aircraft -2.3% 0.3% 5.0% 10.7% 9.5% 4.8%
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