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Economy in Brief

U.S. Durable Goods Orders Drop by 4.9% in August after 6.1% Spurt in July
by Robert Brusca September 26, 2007

Durables goods orders fell sharply in August by 4.9% after a 6.1% spurt in July. Excluding transportation, orders fell by 1.8% after a +3.4% in July and a 1.3% drop in June. Orders growth has been erratic.

Still, trends are for the most part HEALTHY IF NOT STRONG as the main industry groups show shipments growth is still outpacing the growth of inventories. Over three months, only machinery and primary metal shipments lag behind the growth in inventories. Over six months, all seven main groups show shipments growth ahead of inventory growth. Over twelve months, the score is mixed with three above and four below. No major industry group is showing persistent inventory growth problems relative to sales growth. Only machinery shows any tendency for inventory growth to accelerate. Inventories are not an issue here. Unfortunately, shipments growth is also showing signs of slowing from the 6-month growth pace to the recent 3-month pace for most categories. The transportation and electrical equipment sectors are accelerating their shipments on this horizon.

On balance, orders and shipments are slowing year/year and are flat excluding transportation (see accompanying chart).

The sequential growth rates in the table below show that the near-term growth picture is a bit brighter than the year/year picture. Though excluding transportation, 3-month orders and shipments are weak.

Unfilled orders continue to be a bright spot where there is slowing in manufacturing.

The nondefense capital goods sector is slowing and the slowdown is more extreme excluding aircraft with negative orders and shipments on that definition.

On balance, the durable goods report is weak on the month. But trends show a picture that is mostly flat and without much near term pick up when transportation is removed. Capital spending seems to have slowed (excluding aircraft). The two bright spots in the report are (1) the low continuing growth in inventories and the moderate I/S ratios that exist, (2) the continuing strong growth in order back logs (unfilled orders) that suggest that firms are still accumulating business even if they are slowing orders and shipments.

Durable Goods Orders
Durable Goods 3Mo 6Mo 9Mo 12Mo Year Ago
Shipments 5.1% 10.1% 4.6% 0.7% 6.5%
New Orders 11.1% 13.4% 2.8% 4.0% 3.4%
Unfilled Orders 22.8% 21.4% 18.4% 21.9% 17.6%
Inventories -0.1% 0.9% 1.8% 3.7% 7.8%
I:S Ratio 1.46 1.51 1.47 1.40 1.38
Excluding Transportation 3Mo 6Mo 9Mo 12Mo Year Ago
Shipments -0.6% 7.9% 3.6% 0.0% 8.5%
New Orders 1.2% 8.2% 3.7% 1.4% 5.0%
Unfilled Orders 9.2% 8.3% 9.0% 10.1% 13.3%
Inventories -0.5% -0.7% 0.7% 2.5% 8.6%
I:S Ratio 1.50 1.56 1.53 1.46 1.46
Excluding Defense 3Mo 6Mo 9Mo 12Mo Year Ago
Shipments 5.0% 10.3% 4.7% 0.6% 6.4%
New Orders 3.2% 8.9% 2.3% 3.4% 1.8%
Unfilled Orders 25.9% 26.9% 23.8% 26.3% 23.0%
Inventories 0.0% 0.8% 2.2% 4.1% 8.4%
I:S Ratio 1.43 1.48 1.44 1.36 1.34
NonDefense Capital Goods 3Mo 6Mo 9Mo 12Mo Year Ago
Shipments 5.0% 9.7% 1.8% 0.2% 10.0%
New Orders -9.8% 6.1% -2.9% 4.6% 2.2%
Unfilled Orders 34.4% 37.7% 32.2% 35.6% 25.7%
Inventories 3.4% 5.2% 6.3% 7.7% 6.4%
I:S Ratio 1.84 1.87 1.77 1.70 1.76
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