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Economy in Brief

U.S. Durable Goods Orders' Rise = Factory Sector Resilience
by Tom Moeller April 26, 2006

New orders for durable goods jumped 6.1% last month and the 3.4% February increase was upwardly revised. The jump pulled the y/y increase in orders to 17.7%, its strongest in six years, and the m/m gain by far outpaced Consensus expectations for a 1.8% rise. Moreover, the details of the report were constructive for factory sector activity.

During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.

Higher orders for nondefense aircraft & parts led last month's strength with a 71.1% (329.3% y/y) spike that followed the 59.9% February spurt. And new orders for motor vehicles & parts reversed the prior month's decline with a 2.8% (4.2% y/y) rise.

Less the transportation sector altogether, durable goods orders rose 2.8% which more than made up for a little revised 1.1% decline during February.

Orders for computers & electronic products were notably strong last month and posted a 7.5% (7.4% y/y) gain while machinery orders recouped about all of the prior month's decline with a 7.5% (16.3% y/y) increase. Also strong were orders for fabricated metals which increased 1.3% (7.1% y/y) and orders for primary metals rose 1.1% (8.5% y/y). Electrical equipment orders were the laggard last month and fell 1.8% (+13.2% y/y) after a 4.1% February drop.

Orders for nondefense capital goods jumped 12.1% with higher Boeing orders but orders less aircraft still increased 3.0% after a 0.8% February decline that was shallower than initially reported.

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 increased 0.3% (7.6% y/y) following a 0.4% February rise and less the transportation sector shipments were unchanged (8.1% y/y) following a 0.4% February increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.

Order backlogs surged 2.8% (20.9% y/y), a jump dominated by the strength in unfilled orders for aircraft & parts which rose 6.6% (70.6% y/y). Less transportation backlogs also were strong and rose 1.3% (10.8% y/y) lifting the ratio of backlogs to shipments outside of transportation to the highest level since November.

Durable inventories rose 0.7% (3.0% y/y) after a 0.4% February decline. Less transportation inventories rose an identical 0.7% (3.4% y/y) while the inventory to sales ratio outside of the transportation sector rose to the highest level since November.

NAICS Classification Mar Feb Y/Y 2005 2004 2003
Durable Goods Orders 6.1% 3.4% 17.7% 8.6% 9.5% 4.1%
    Excluding Transportation 2.8% -1.1% 9.6% 8.6% 11.7% 3.1%
Nondefense Capital Goods 12.1% 4.0% 31.5% 20.0% 11.0% 4.2%
 Excluding Aircraft 3.0% -0.8% 11.8% 10.7% 9.5% 4.8%
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