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Economy in Brief

Rise in U.S. Durable Goods Orders Surprises
by Tom Moeller March 25, 2009

New orders for durable goods rose a surprising 3.4% last month after a revised 7.3% January decline that was deeper than reported initially. Despite the latest increase, new orders have fallen by roughly one quarter since the middle of last year; however, downward momentum in the level of bookings may have slackened. The latest increase compared to Consensus expectations for a 2.3% drop.

The unexpected rise in orders last month was not limited to any one sector. Machinery orders were the strongest and they posted a 13.5% rise (-13.1% y/y) which recovered the sharp downdraft during January. Orders for computers & related products followed with a 10.1% increase (-21.2% y/y). That erased the January drop. Orders for transportation equipment recouped their descent during January with a 2.0% increase. They remained off by nearly one-half from the year ago level. Still to the downside were February orders for new aircraft which dropped 3.6% and orders for motor vehicles & parts which fell by 0.6%. Orders for communications equipment also fell sharply.

There were glimmers of stability in other industries, too. Electrical equipment bookings rose 1.6% but that made up just a piece of a January drop. They're still down by one quarter from the year ago level.Primary metals orders ticked lower by just 0.6%.

Capital equipment orders recouped nearly all of their January shortfall with an 11.0% rise. Nevertheless, they still are down by one-quarter from last February. Orders for nondefense capital goods made up their January decline but orders excluding aircraft recovered just half the January down draft. 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 rise in new orders was not accompanied by higher shipments of durable goods. They ticked 0.5% lower last month and are off 15.4% y/y. That year-to-year weakness has been accompanied by a 17.9% 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.

Inventory accumulation has responded resoundingly to these production cuts. Inventories of manufactured durables fell 0.9% after a 1.1% January drop. But the last was just the second substantial monthly decline since 2003 suggesting that continued efforts to curb the inventories are waiting. Six-month growth was about flat and that compares to outright inventory decumulation at an 8.0% rate during the last recession.

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

NAICS Classification (%) February January Y/Y 2008 2007 2006
Durable Goods Orders 3.4 -7.3 -23.4 -5.8 1.4 6.2
    Excluding Transportation 3.9 -5.9 -16.2 -1.2 -0.3 9.1
Nondefense Capital Goods 7.4 -8.9 -29.1 -6.8 3.5 9.4
 Excluding Aircraft 6.6 -11.3 -17.8 -0.3 -2.7 10.7
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