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Economy in Brief

U.S. Durable Goods Orders Surged in December, Gain Slowed in 2007
by Tom Moeller January 29, 2008

Orders for durable manufactured goods surged 5.2% last month helped very much by a jump in orders for commercial aircraft. December's rise was the largest m/m gain since July. Nevertheless, a reduced increase in orders for all of 2007 highlighted the factory sector's weakness. The 1.0% annual rise in orders was a fraction of the 6.3% gain during the year prior and it was the weakest rise since a decline in 2002. Consensus expectations had been for a smaller gain in December.

Excluding the notably volatile transportation sector, orders rose 2.6% after a slight decline in November. Again, however, the rise did little to make up for weakness earlier in the year. As a result, orders less the transportation sector altogether nudged up just 0.3%, the weakest annual increase since 2003.

In the transportation sector, orders for aircraft & parts surged 26.2% (23.1% y/y) and that followed an 18.4% November jump. The nondefense portion of those orders rose 11.7% (28.4% y/y) and defense aircraft orders more than doubled m/m (7.1% y/y. Working the other way were orders for motor vehicles & parts which fell 2.3% (-12.4% y/y) and these orders were down 4.6% for the year, the second year of decline.

Orders for nondefense capital goods rose 5.4%, about as they did in November. Here again, though, the rise did little to recoup earlier weakness. The m/m gain only lifted the rise for all of last year to a third the rise during 2006. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise in equipment & software spending in the GDP accounts. The correlation with capital goods shipments is, as one would expect, a larger 92%. During December, orders for nondefense capital goods less aircraft posted a 4.4% surge which more than made up declines during the prior two months.

Computers & related products orders rose 4.6% (4.4% y/y) in December and made up about half the weakness during the prior two months. Orders for computers (9.3% y/y) and for communications equipment (9.3% y/y) were strong in the month but for the whole year these orders were down with lower prices.

Orders for machinery surged 7.6% (4.5% y/y). The strong gain at yearend, however, couldn't mask the slowdown in the capital goods sector last year. For the full year these orders rose only 0.7% after gains of 9.6% and 14.4% during the prior two years.

Primary metal orders ended the year with a slight 0.2% slip (+6.9% y/y). For the year orders rose 3.7%, one third the 2006 increase.Orders for electrical equipment, appliances & components recovered all of the prior month's decline with a 4.1% (1.8% y/y) gain.

Overall shipments of durable goods ticked down slightly in December (-0.1% y/y) for the fifth decline in seven months. Less transportation shipments rose 0.4% (2.2% y/y) while these shipments rose just 0.7% for the full year following a 6.6% 2006 increase.

Inventories of durable goods surged 1.1% (3.6% y/y). Indicative of an inventory backup the three month gain rose to 2.3%, its strongest since late last year while less transportation inventories rose 0.5%. The three month increase accelerated to 1.3%, its highest in a year.

NAICS Classification December November Y/Y 2007 2006 2005
Durable Goods Orders 5.2% 0.5% 1.7% 1.0% 6.3% 9.9%
    Excluding Transportation 2.6% -0.4% 2.3% 0.3% 7.6% 8.8%
Nondefense Capital Goods 5.4% 5.3% 4.4% 3.4% 10.6% 17.1%
 Excluding Aircraft 4.4% -0.2% 1.3% -1.6% 8.5% 11.1%
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