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Economy in Brief

U.S. Durable Goods Orders Show Broad-based Decline Last Month
by Tom Moeller September 25, 2008

New orders for durable goods fell 4.5% during August and that reversed all of the downwardly revised, modest increases during the prior two months. Last month's decline certainly reflected a 38.1% (+31.1% y/y) plunge in orders for commercial aircraft, but elsewhere orders also fell sharply. Consensus expectations had been for a 1.5% decline in orders last month.

Less the transportation sector altogether, durable goods orders fell 3.0% after a downwardly revised 0.1% July uptick. Expectations had been for a dip during August. On a three-month basis growth in orders less the transportation sector fell to -1.5% (AR), the weakest since late last year.

August orders for nondefense capital goods fell 7.5% paced by the plunge in orders for commercial aircraft. Nevertheless, without aircraft nondefense capital goods orders dropped 2.0%. That lowered the three-month growth rate to -0.2%, it's worst since early last year. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise 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%.

Outside the transportation sector, new orders were weak led by a 6.2% plunge in new orders for machinery. These orders still were up 5.2% y/y but three-month growth fell to -0.9%.Primary metals orders also turned weak as they posted a 9.3% (+12.0% y/y) drop which reversed virtually all of the gains during the prior two months. New orders for electrical equipment also fell a sharp 2.2% -1.2% y/y) after the downwardly revised 8.2% July shortfall. On a three-month basis these orders were down at a 20.8% annual rate.

The 1.9% August rise in new orders for computers & electronic products belies the weakness that has developed in this sector. On a three-month basis these orders fell at a 6.7% rate after a 2.1% decline during all of last year. Orders for just computers & related products increased 2.0% (-14.8% y/y) after a downwardly revised 13.2% July plunge. New orders for communications equipment were stronger and they posted a 4.6% (1.3% y/y) increase. Three-month growth amounted to 5.5%, a recovery from last year's 7.5% decline.

Overall shipments of durable goods fell 3.5% (-2.6% y/y) and that reversed a 2.3% July increase. During the last three months growth is a negative 1.7% (AR) after last year's negligible 0.1% uptick. For comparison, industrial production of durable goods during the last three months is -3.0% (-2.2% y/y). During the last ten years there has been a 79% correlation between the y/y change in shipments of durable goods and the change in durables industrial production. Less transportation, shipments of durable goods reversed all of their July increase and fell 2.1% (+2.1% y/y). Three-month growth was 2.2% (AR), down from 5.9% in January.

Inventories of durable goods again were strong and they rose 0.7% (8.1% y/y). Three-month growth amounted to 10.2% (AR), the strongest rate of accumulation in roughly two years. Less transportation, inventories also rose a strong 0.7% (5.9% y/y) and the three-month growth rate amounted to 5.9% after the 1.4% rise during 2007.

NAICS Classification August July Y/Y 2007 2006 2005
Durable Goods Orders -4.5% 0.8% -4.7 % 1.4% 6.2% 10.2%
    Excluding Transportation -3.0 0.1 1.4 -0.3 9.1 9.1
Nondefense Capital Goods -7.5 3.5 -1.9 3.5 9.4 17.3
 Excluding Aircraft -2.0 0.4 1.9 -2.7 10.7 11.6
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