US Durable Goods Flat Last Month

Bookings for U.S. durable goods leveled off in October, mainly because of slack demand for autos and aircraft and a reversal in defense orders.

Yet factoring out the volatile defense and transportation industries, so-called core capital orders jumped 1.7% last month to mark the strongest gain since May, according to Commerce Department data. That category gives a better idea of the health of the broader U.S. manufacturing sector.

Core orders are unchanged so far in 2012, however, reflecting the pervasive softness in demand faced by domestic manufacturers.

Overall orders for durable goods were virtually flat in October, the government reported Tuesday. Economists polled by MarketWatch had expected a 0.4% decline.

Durable goods are items such as cars, computers or heavy machinery expected to last at least three years. A sort of economic canary in the coal mine, orders spike when U.S. growth accelerates and soften when a slowdown ensues.

The latest report suggests a continued caution on the part of business toward the end of the year. Companies are worried about the threat of a U.S. budget crisis in early 2013, when deep spending cuts and higher taxes are set to kick in unless Congress averts a “fiscal cliff.”

A recent report by the investment bank Credit Suisse indicates that as many as 30% of U.S. companies are delaying some projects until Washington resolves the looming crisis. Yet the effects of Hurricane Sandy late in the month were “virtually nil,” a Commerce official said.

The biggest declines in orders last month occurred in defense and transportation, two categories whose bookings can whipsaw from month to month. Orders for autos and parts dropped 1.6% and bookings for commercial aircraft fell 5.8% last month after soaring in September.

Excluding transportation, new orders rose a modest 1.5% in October on the heels of a 1.7% increase in the prior month.

Orders for defense capital goods — jets, tanks, long-range missiles — sank 7.1% last month after surging 37.5% in September. Orders minus defense rose a scant 0.1%.

Areas of strength in October included primary metals, machinery and electrical equipment.

Primary metals, often a good indicator of future demand, rose 1.7% and posted a second straight gain. Machinery orders rose 2.9% and bookings for electrical equipment moved up 4.1%.

Shipments of durable goods fell 0.6% in October. Shipments of core capital goods, a number used to help determine quarterly growth, dropped 0.4%. These shipments have fallen four straight months.

Inventories increased 0.4% and unfilled orders rose 0.2% in October.

Orders for September were revised to a 9.2% gain from an initial report of a 9.9% increase.

The durables report is often volatile and subject to sharp revisions, so economist pay more attention to longer-term trends. Orders have risen 4.9% in the first 10 months of 2012, but they are down 5.1% in the past three months.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell