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Economy in Brief

U.S. Durable Goods Orders Off Big, As Expected
by Tom Moeller February 27, 2008

New orders for durable manufactured goods dropped 5.3% last month. The decline only slightly exceeded Consensus expectations for a large 4.0% downdraft but the surge during December was revised down. The weakness in orders was heralded by the orders component in the Institute for Supply Management's Composite Index of factory sector activity. It was below the breakeven level of 50 in both December and January.

Excluding the notably volatile transportation sector, orders fell 1.6% and the December increase of 2.0% was revised down.

Transportation sector orders fell 13.4% due both to a 31.0% (+79.3% y/y decline in new orders for aircraft & parts and a 0.8% (-5.8% y/y) decline in orders for motor vehicles parts. The nondefense portion of aircraft orders collapsed 30.5% (+86.6% y/y).

Orders for nondefense capital goods fell 8.1% due to that decline in aircraft orders. 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 January orders for nondefense capital goods less aircraft fell 1.4% after a 5.2% December surge. Growth in these orders actually has accelerated recently with the three month rise up to 15.5% (AR) which made up a decline this past Fall.

Computers & related products orders fell 11.7% (+0.8% y/y) and gave back all of the 5.1% December rise. Orders for communications equipment dropped 11.9% (+3.5% y/y). Orders for machinery slipped 1.5% (+14.6% y/y) after the 7.8% December spike.

Overall shipments of durable goods last month rose 1.8% (2.8% y/y). Less transportation shipments 1.5% (3.5% y/y).

Inventories of durable goods rose 0.6% (3.7% y/y). Less transportation inventories rose a firm 0.4% and the three month increase was a strong 4.7% (AR).

Yesterday's speech by Federal Reserve Board Vice Chairman Donald L. Cohn can be found here.

NAICS Classification January December Y/Y 2007 2006 2005
Durable Goods Orders -5.3% 4.4% 3.8% 0.9% 6.3% 9.9%
    Excluding Transportation -1.6% 2.0% 3.1% 0.2% 7.6% 8.8%
Nondefense Capital Goods -8.1% 5.5% 14.9% 3.5% 10.6% 17.1%
 Excluding Aircraft -1.4% 5.2% 5.4% -1.6% 8.5% 11.1%
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