Wednesday, 22 of November of 2017

Economics. Explained.  

Durable Goods Orders

October 25, 2017

Durable goods orders rose 2.2% in September after having risen 2.0% in August.  As always this is a very volatile series.  Over the course of the past year durables have risen 8.3%.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was certainly the case in recent months.  Transportation orders rose 5.1% in September. This means that non-transportation orders climbed by 0.7% in both August and September after having risen 0.8% in July.  Over the past year non-transportation orders have risen 6.7%.  This series has been steadily rising for the past year and is now climbing at the fastest rate we have seen since March 2012 (red line).

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 0.5% in September after having climbed by 1.3% in both July and August.  Over the course of the past year such orders have risen 6.9%.  At long last these orders seem to be rising slowly which bodes well for a faster pacer of investment spending and positive growth in productivity.

The backlog of orders was rose 0.2% in September after having been unchanged in August.  If orders continue to climb consistently the backlog will climb as well which will eventually boost production.   We are not looking for a lot of strength from the manufacturing sector this year, but we do expect it to continue its gradual uptrend.

We think that the manufacturing sector is on a slow but steady uptrend.   Home prices are rising.  Consumer net worth is at a record high level.  Corporations are making near record profits.  They have a ton of cash to invest.  Interest rates are near historic lows.  And 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.  And with both corporate and consumer tax cuts now in the works the factory sector should get a boost in 2017.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  5.6% in 2017 and 4.9% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


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