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Economy in Brief

U.S. Durable Goods Orders Firmed, Inventories Up
by Tom Moeller January 26, 2007

The 3.1% surge in new orders for durable goods about matched Consensus expectations and followed an upwardly revised 2.2% increase in November. For the year durable goods orders rose 7.1%, down just moderately from the 9.0% gain during 2005 but much of the strength reflected gains at the end of 2005 and early 2006.

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..

Another strong 24.8% (-8.6% y/y) gain in total aircraft & parts orders boosted durable goods bookings last month after a 13.2% rise during November. Orders for motor vehicles & parts even turned in a sharp 6.8% (0.0% y/y) gain. Yet less transportation altogether, orders still rose 2.3% and made up for most of the declines during the prior two months.

Orders for nondefense capital goods less aircraft rose 2.4% reflecting a 5.0% (6.1% y/y) surge in machinery orders. During the last ten years there has been an 86% 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.

Orders for computers & electronic products rose 1.0% (11.4% y/y) after an 8.0% November spike. Primary metals orders also jumped 4.5% (9.1% y/y) making up nearly all of the declines during the prior tree months.

Shipments of durable goods gained 0.8% (0.5% y/y) after flat-to-down movement over the prior several months. Less the transportation sector, however, shipments fell 0.1% (+2.1% y/y) for the fourth consecutive monthly decline. 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.

Durable inventories again rose moderately, by 0.4% (8.4% y/y) after a 0.3% November rise. Less the transportation sector, however, inventories doubled the modest 0.3% November gain with a 0.6% (9.3% y/y) increase. The inventory to shipments ratio outside of transportation, as a result, rose further to the highest level since early 2004.

NAICS Classification December November Y/Y 2006 2005 2004
Durable Goods Orders 3.1% 2.2% 2.6% 7.1% 9.0% 6.4%
    Excluding Transportation 2.3% -1.0% 5.1% 8.1% 9.4% 7.6%
Nondefense Capital Goods 9.0% -0.3% 0.9% 9.7% 21.4% 5.6%
 Excluding Aircraft 2.4% -1.0% 6.7% 9.2% 12.3% 2.8%
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