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Economy in Brief

U.S. Durable Goods Orders Recover Earlier Decline And Are Up Slightly 'YTD
by Tom Moeller May 28, 2009

Perhaps the factory sector's distress is nearing its end. At least some moderation of last year's woes was evident in the latest report of durable goods orders. During April orders rose 1.9% following a 2.1% March decline which was greater than reported initially. Consensus expectations were for a 0.5% April increase and during the last three months orders have risen at a 1.4% annual rate.That follows a 5.8% decline during all of last year.

A 5.4% rise (-27.5% y/y) in transportation equipment orders led last month's increase in total durables bookings after having been unchanged during March. Orders for motor vehicles & parts recovered 2.4% (-24.7% y/y) for the first monthly increase since last September. Machinery orders also rose but by a lesser 2.4% (-33.4% y/y) and electrical equipment orders ticked up 0.3% (-24.9% y/y). Orders for computers & electronic products, however, worked lower again and fell 2.7% (-10.9% y/y). Finally, primary metals bookings did increase 1.0% for the month but remained down by one-half from April of last year.

As is common during recession, the capital goods sector will lag any improvement in new orders for early cycle products. As such, orders for nondefense capital goods fell 2.0% last month and they have fallen in nearly each month since early last year. Orders excluding aircraft also fell by 1.5% during April and they are down by one-quarter over the last year. 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%.

Shipments of durable goods continued lower and slipped 0.2% last month (-18.4% y/y). They have fallen at a 22.8% annual rate so far this year and the decline has been accompanied by a like three-month rate of decline in industrial production of durable goods. During the last ten years, there has been an 80% correlation between the change in shipments of durable goods and the change in durables industrial production.

Inventories of durable goods fell for the fourth consecutive month. The 0.8% decline was the fourth in a row and it brought the annual rate of change to -13.7%, the quickest since 2001. Decumulation of metals and machinery inventories has been notably fast. Backlogs in order books have fallen in each of the last seven months and during the last year by 6.7%, a rate of decline which is the sharpest since 2003.

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

Recession and Recovery Across the Nation: Lessons from History from the Federal Reserve Bank of Kansas City is available here.

NAICS Classification (%) April March Y/Y 2008 2007 2006
Durable Goods Orders 1.9 -2.1 -24.4 -5.8 1.4 6.2
    Excluding Transportation 0.8 -2.7 -23.3 -1.2 -0.3 9.1
Nondefense Capital Goods -2.0 -0.9 -32.8 -6.8 3.5 9.4
 Excluding Aircraft -1.5 -1.4 -24.4 -0.3 -2.7 10.7
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