United States Durable Goods: ‘fas est et ab hoste doceri.’

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Takeaways

+ New orders increased 1.3% in November to an aggregate sum of $241,400,000. The Census Bureau indicated that increases in New Orders for manufactured durable goods have increased 3 out of the last 4 months, dropping only in October by -0.3%.

+ Backing out transportation from the print, new orders decreased -0.1%. 

+  Excluding defense purchases, new orders increased 1.0%, re-re-confirming our convictions of growing momentum in the manufacturing sector.

+ As was the case for new orders, transportation equipment, has also increased 3 out of the last 4 months. Transporation equipment was the underlying driver of the increase in durable goods this month, reported + $3,300,000,000  to an aggregate sum of $80,900,000,000. In other words, an increase of +4.2%. 

+ The shipments of manufactured goods increased $2,400,000,000 in November, which has increased 6 out of the last 7 months.

+ Unfilled Orders has been increasing for the last 3 consecutive months; in November increasing +$1,000,000,000. Most notably, fabricated metal products have been reporting increases in 10 of the past 11 months.

+ Inventories of manufactured durable goods has increased 16 of the past 17 months; increasing in November by +$900,000,000 

+ Capital Goods of nondefense new orders increased +$1,900,000,000 or 2.6% in November.

 

Table 1. Durable Goods Manufacturers’ Shipments and New Orders

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Table 2. Durable Goods Manufacturers’ Unfilled Orders and Total Inventories

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Durable Goods

(ALSO KNOWN AS THE ADVANCE REPORT ON DURABLE GOODS MANUFACTURERS’ SHIPMENTS, INVENTORIES, AND ORDERS)

Market Sensitivity: High.

What Is It: A key indicator of future manufacturing activity.

Most Current News Release on the Internet: www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

Home Web Address: www.census.gov

Release Time: 8:30 a.m. (ET); released three to four weeks after the end of the reporting month.

Frequency: Monthly.

Source: Census Bureau, Department of Commerce.

Revisions: Revisions can be major and cover the two preceding months

 

 

Market Impact

Bonds

Players in the bond market have a visceral dislike for surprises. Yet the Advance Report on Durable Goods is notable for regularly catching investors off guard because it is so volatile and unpredictable. Should orders come in at a pace much greater than expected, it could pummel bond prices and kick up yields. A surge in new orders, excluding defense and aircraft orders, indicates a strengthening manufacturing sector, faster GDP growth, and possibly higher inflation in the future. Conversely, a sudden drop in orders will weaken the manufacturing sector and possibly “the rest of the economy, a scenario that’s generally bullish for bonds.

Stocks

It’s more problematic to predict how equity investors will react to the durable goods report. Generally, a jump in orders is viewed favorably because it can lead to higher corporate profits. However, if the economy is already operating at close to full capacity, a sharp increase in orders might unnerve stock market players who fear that the bond market will drive interest rates sharply higher. The rising cost of credit will cut into corporate earnings, and this could end up depressing share prices.

Dollar

The dollar frequently rallies on evidence of a strengthening U.S. economy, especially if it exceeds that of other industrialized countries. However, even currency traders might balk if the durable goods report adds “to a growing body of evidence that the economy is overheating.

-R.W.N II

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