Durable Goods Strength Skewed by Aircraft Orders

Thursday’s report on durable goods was, no pun intended, quite durable. The headline report showed a gain of 3.4% in the month of April. This was handily higher than the 0.5% projected by a Reuters poll. It also blew out the expectations of 0.7% from Dow Jones. Bloomberg was calling for only a 0.3% gain, and its Econoday range was −0.6% to a gain of 1.3%.

In terms of raw dollars, the new orders for manufactured durable goods rose by some $7.7 billion (3.4%) to $235.9 billion in April.

What matters here is that the durable goods reading, while very volatile from month to month, is heavily influenced by transportation. After all, cars, trucks and airplanes are big-ticket items. If you back out transportation, durable goods rose 0.4%, which is in line with the 0.4% projected by Bloomberg and the 0.3% forecast by Reuters.

The U.S. Department of Commerce showed this number was bolstered by aircraft orders. Thursday’s report noted:

Transportation equipment, also up three of the last four months, led the increase, $7.1 billion or 8.9 percent to $87.1 billion.

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On top of strength this month, the headline durable goods report from March was revised higher to 1.9% from the previous 0.8%. Excluding transportation, the March report was revised higher to a gain of 0.1% from the prior −0.2%.

Before economists and investors get too excited here, they should note that there was a 0.8% decline in the core capital goods orders. That marks three straight months of the core reading in the red, and that is now five of the past six months in the red. The annual comparisons are even worse at −5.0% for the core reading, and the prior core reading on an annual basis from March was revised to −5.0% from −2.4%, all pointing to continued weak demand for business investment and capital spending.

Thursday’s report showed a 0.6% rise for total shipments. This was followed by a 0.6% gain in the total unfilled orders, which looks to be the largest gain in almost two years.

A drop of 0.2% in inventories helped to pull down the inventory-to-shipments ratio to 1.65 in April. This was down from 1.67 in March.

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