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Economy in Brief

U.S. Durable Goods Orders Post Surprising Decline
by Tom Moeller March 26, 2008

New orders for durable manufactured goods fell 1.7% last month. During January orders declined 4.7% and that was slightly less severe than originally reported. Consensus expectations had been for a slight uptick in February orders. Weakness in factory orders initially was suggested by the Institute for Supply Management's orders index which at 49.1 in February remained below the breakeven level of 50.

Excluding the volatile transportation sector, durable goods orders fell 2.6% after a 1.0% January decline that was slightly shallower than initially estimated.

Orders for transportation equipment rose a modest 0.6% after the 12.8% January slump. New orders for aircraft & parts recovered 5.1% (22.8% y/y) after a 30.7% January collapse but orders for motor vehicles parts fell 2.7% (-7.7% y/y). Orders for nondefense aircraft rose 5.4% following a 30.3% January drop.

Despite the rise in aircraft orders, orders for nondefense capital goods fell 1.0% after a little revised 8.4% January swoon . 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%.

February orders for nondefense capital goods less aircraft fell 2.6% following a 1.8% January decline that was deeper than initially estimated.

Orders for machinery fell a hard 13.3% (+0.7% y/y) following a modest 0.4% January uptick.Computers & related products orders, however, made up most of the prior month's decline with a 10.0% increase. Orders for communications equipment also recovered but only by 6.0% after a 14.1% January drop. Primary metal orders rose 1.0% and essentially repeated a 0.9% January increase.

Overall shipments of durable goods gave back all of the January increase with a 2.8% decline last month. That was led by a 4.1% drop in shipments from the transportation sector. Less transportation, shipments were weak and fell 2.3% (+3.1% y/y).

Inventories of durable goods rose 0.5% (4.1% y/y) and they have been building at an accelerated rate during the last few months. Annualized, an 8.8% rate of accumulation during those three months is up from -0.1% last August. Less transportation, inventories rose at a 4.7% rate during the last three months and that was raised from -0.6% last Summer.

NAICS Classification February January Y/Y 2007 2006 2005
Durable Goods Orders -1.7% -4.7% 2.2% 0.9% 6.3% 9.9%
    Excluding Transportation -2.6% -1.0% 1.6% 0.2% 7.6% 8.8%
Nondefense Capital Goods -1.0% -8.4% 6.9% 3.5% 10.6% 17.1%
 Excluding Aircraft -2.6% -1.8% 4.7% -1.6% 8.5% 11.1%
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