U.S. Durable Goods Orders' Improvement Abates

The pace of improvement in factory sector activity eased after material improvement early last year. Durable goods orders during December provided another indication of a slower rate of gain with a 0.3% increase following two months of modest declines which were revised lower. A 2.0% December increase had been the Consensus expectation. The recently flat orders pattern nevertheless left orders 6.3% above the March low. For all of last year, orders fell 19.9% following a 6.0% drop during 2008.

Transportation sector orders provided much of the shortfall during the last two months with 2.0% and 8.1% declines. These were led by sharply lower orders for nondefense aircraft & parts which fell by one-half during all of last year after a one-third 2008 decline. New orders for motor vehicles & parts improved slightly during the second half of 2009 but were off by one-quarter for the year.

Primary metals orders improved sharply during the second half of last year but still were off by one-third for 2009. Machinery orders also improved steadily during the second half but fell 25% for the year as a whole. Electrical equipment orders were volatile m/m and fell 19.1% for the year. Orders for computers & related equipment also showed sketchy improvement late in the year but nevertheless fell 10.6% for 2009 overall.

Capital goods orders ended 2009 on a firm note. Nondefense capital goods orders less aircraft rose 1.3% (-2.0% y/y) and rose 12.3% from the April low.

Shipments of durable goods jumped 2.9% during December (-3.9% y/y) and firmed by 7.2% during the second half of 2009. Shipments of primary metals have been notably strong (2.0% y/y) logging a one-third increase since mid-year. Machinery shipments also firmed late in the year (-16.0% y/y) as did electrical equipment shipments (-8.4% y/y).

Perhaps the factory sector's inventory cycle is ending but it's not over. Durable goods inventories slipped 0.2% during December (-11.3% y/y) after similar declines during the prior two months. These declines followed monthly drops between 1.0% and 1.7% during the first nine months of the year. As a result of the decumulation the ratio of inventories-to-shipments was at its lowest since October of 2008, off sharply from the January high.. The pace of the decline in unfilled orders accelerated at a yearend with a 1.2% drop (-10.4% y/y) after a 0.7% November decline. The transportation sector saw the largest shortfall (-11.7% y/y). Less transportation, backlogs were roughly unchanged during the last three months of 2009 (-8.7% y/y).