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Economy in Brief

U.S. Durable Goods Orders Lowest in Six Years; Latest Six-Month Decline a Record
by Tom Moeller February 26, 2009

The recession in the U.S. factory sector entered an even more dire phase during the last several months.  New orders for durable goods fell 5.2% last month after downwardly revised declines of between 4.0% and 8.0% during four of the prior five months.  Since July new orders have plummeted 24.9%, a record six-month drop.  The latest decline doubled Consensus expectations for a 2.4% drop.

That shortfall in new orders has been aptly followed by lower shipments of durable goods.  Off 3.7% in January, the decline followed shortfalls of between 3.0% and 4.0% during four of the prior five months.  Year-to-year shipments fell 15.2% and they are down 15.9% during just the last six months.  This extreme weakness has brought with it a 17.5% twelve-month decline in industrial production of durable goods.  During the last ten years there has been an 83% correlation between the twelve-month change in shipments of durable goods and the change in durables industrial production.

Last month, the production cuts may finally have succeeded in curbing inventory accumulation.  Inventories of manufactured durables fell 0.8%, the first monthly decline since 2003. But more efforts to curb the inventory buildup are to come.  Six-month growth still amounted to 1.3%.  And while that's down from the peak, it compares to outright inventory decumulation at an 8.0% rate during the last recession.

Orders for transportation equipment led last month's decline in orders for durable goods with a 13.5% drop which left them off 38.7% year-to-year.  The aircraft sector led that shortfall with a nearly three-quarters drop in nondefense bookings.  Orders for motor vehicles & parts fell by a lesser one-third during the last year.

Lower new orders for computers & electronic products followed closely for the top weakest spot in last month's decline with a 5.0% drop (-13.6% y/y) which followed the 7.1% December shortfall.  Orders for just computers & related products were the weakest and posted a 16.0% drop and they're off by more than one quarter during the last twelve months.  Working the other way were new orders for communications equipment which rose 1.2%.  That recovered a piece of the 5.2% decline during December and limited the year-to-year shortfall to just 2.6%.

Most other industries have been notably hard hit by weakening demand.  Orders for primary metals fell 4.6% last month and they're down by more than one-third during the last twelve.  Machinery orders fell 2.0% last month and they're off 23.0% during the last year.  Electrical equipment bookings reversed all of a downwardly revised December gain with a 6.1% flop.  They're down by 22.1% during the last twelve months.

Capital equipment orders are very much suffering from all this weakness in the front-end of the economy. They fell 8.8% last month and are down 26.2% during the last twelve. Orders for nondefense capital goods have been particularly hard hit and they posted a 28.3% fall just in January. Alone, aircraft orders have fallen by three-quarters year-to-year. And without aircraft, nondefense capital goods orders fell 5.4% during January and by 18.5% during the last twelve months to their lowest level since 2004. During the last ten years there has been an 80% correlation between the y/y change in nondefense capital goods orders and the change in equipment & software spending in the GDP accounts. The correlation of the GDP figure with capital goods shipments is, as one would expect, a larger 92%.

The durable goods figures are available in Haver's USECON database.

The U.S. Auto Industry from the Federal Reserve Bank of Cleveland can be found here.

NAICS Classification (%) January December Y/Y 2008 2007 2006
Durable Goods Orders -5.2 -4.6 -23.3 -5.8 1.4 6.2
    Excluding Transportation -2.5 -5.5 -17.4 -1.3 -0.3 9.1
Nondefense Capital Goods -2.7 -10.2 -28.3 -6.7 3.5 9.4
 Excluding Aircraft -5.4 -5.8 -18.5 -0.3 -2.7 10.7

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