Durable Goods Report: March Beats Expectations

April 24th, 2014

by Doug Short

The April Advance Report on March Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders:

New orders for manufactured durable goods in March increased $6.0 billion or 2.6 percent to $234.8 billion, the U.S. Census Bureau announced today. This increase, up two consecutive months, followed a 2.1 percent February increase. Excluding transportation, new orders increased 2.0 percent. Excluding defense, new orders increased 1.8 percent.

Transportation equipment, also up two consecutive months, led the increase, $2.8 billion or 4.0 percent to $74.1 billion.
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The latest new orders number came in at 2.6 percent month-over-month, which beat the Investing.com forecast of 2.0 percent. Year-over-year new orders are up 9.1 percent.

If we exclude transportation, "core" durable goods came in at 2.0 percent MoM and 5.1 percent YoY. Investing.com had a forecast a much smaller 0.6 percent.

If we exclude both transportation and defense, durable goods were up 0.8 percent MoM and 2.5 percent YoY.

The Core Capital Goods New Orders number (captial goods used in the production of goods or services) was up 2.3 percent MoM. The YoY number was up 3.5 percent.

The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two. Over the past year, the market has certainly pulled away from the durable goods reality, something we also saw in the late 1990s.

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An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

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Here is an overlay with GDP — another comparison I like to watch.

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The next chart shows the percent change in Core Durable Goods (which excludes transportation) overlaid on the headline number.

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Here is a similar overlay, this time excluding Defense as well as Transportation (an even more "core" number).

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This last chart is an overlay of Core Capital Goods on the larger series. This takes a step back in the durable goods process to show Manufacturers' New Orders for Nondefense Capital Goods Excluding Aircraft.

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In theory the durable goods orders series should be one of the more important indicators of the economy's health. But its volatility and susceptibility to major revisions of the previous monthly data suggest caution in taking the data for any particular month too seriously.

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