U.S. Durable Goods Orders Slip; Trend Still Sharply Negative

There seems to be no letup in the factory sector's distress. That's the indication from a 0.8% slip in new orders for durable goods last month. While the magnitude of the slip was a positive surprise versus Consensus expectations for a 1.5% decline, February's gain was lessened to 2.1% from 3.7% reported initially. The best that can be said about the latest figures is that the downward momentum in orders has slackened to a -24.2% annual rate during the last three months versus the 50% rate of decline as of January.

Lower orders for transportation equipment again led the decline in overall bookings with a 1.4% decline. Orders for motor vehicles fell hard and they are down by more than one-third during the last year. Orders for computers also fell a sharp 2.0% (-21.3% y/y) and primary metals bookings dropped 3.2% (-43.2% y/y). There were glimmers of light elsewhere in the report, but they were just faint ones. Electrical equipment orders made up their February decline with a 1.8% (-9.7% y/y) increase and machinery orders slipped just 0.1% (-26.3% y/y). Their strong February increase, however, was halved to 7.1%.

Perhaps another glimmer was the 1.9% increase in orders for nondefense capital goods. That followed a 4.9% jump during February. Orders excluding aircraft also recovered 1.5%. 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 to the downside at a steady rate. They fell 1.7% last month and they are off at a 27.9% annual rate during the last three. That weakness has been accompanied by a 30.0% 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.

Inventory accumulation continues to respond to these production cuts. Inventories of manufactured durables fell 1.1% during March, about the same as they did during the prior two months. That brought the annual rate of decumulation to 13.1% during the last three months. That nearly matches the rate of decline during the 2001 recession but there's no end in sight if shipments don't show a sign of stabilization.

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

Fed Confronts Financial Crisis by Expanding Its Role as Lender of Last Resort from the Federal Reserve Bank of Dallas can be found here.