Wednesday, 22 of May of 2019

Economics. Explained.  

Durable Goods Orders

April 25, 2019

Durable goods orders jumped 2.7% in March after having fallen 1.1% in February.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen 2.3%.  Our sense is that orders will continue to grow slowly in the months ahead.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was  the case in both February and March as transportation orders  jumped 7.0% in March after having declined 2.9% in February.  This means that orders for durables ex transportation rose 0.4% in March after having declined 0.2% in February.  These orders rose steadily at rates generally between 7.0-9.0% (red line) for most of last year, but have slipped in recent months to a year-over-year increase currently of 3.5%.

Economists are also interested in capital goods orders so we can get some sort of a handle on the investment spending portion of GDP.  But even capital goods orders can get blown around from one month to the next if there is a huge defense order or if there is a big airline order.  Orders will rise very sharply one month, only to decline almost as sharply in the subsequent month.  Thus, the focus is typically on non-defense capital goods orders ex air.  These orders rose 1.3% in March after having risen 0.1% in February.  Over the course of the past year such orders have risen 5.3%.  While currently rising at a moderate pace we would look for growth to pick up somewhat as the year progresses so that we can see continued rapid growth in investment spending and positive growth in productivity.

The backlog of orders rose 0.3% in March after having fallen 0.2% in February.  Basically they have been flat for the past six months or so.  This means that manufacturers are filling orders at about the same pace as orders come in so that the backlog remains steady.  That also means that we should expect production to continue at a slow but steady pace for the next several months.  If orders begin to climb consistently the backlog will climb as well, which will point towards a faster pace of production going forward.

We think that the manufacturing sector is on a slow but steady uptrend.  The economy is cranking out 190 thousand jobs per month.    The tight labor market should induce firms to spend money on technology in 2019 to boost output.  The rate of capacity utilization in the manufacturing sector suggests a need fairly soon to either re-furbish the assembly line and/or invest in new technology.  Corporations are making solid profits.  Interest rates remain relatively low.  Inflation remains close to the Fed’s target.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  6.5% in 2019.

Stephen Slifer


Charleston, SC

Leave a comment

Comments RSS TrackBack 1 comment