Monday, 25 of March of 2019

Economics. Explained.  

Durable Goods Orders

March 13, 2019

Durable goods orders rose 0.4% in January after having risen 1.3% in December.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen a solid 8.4%.  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 December as transportation orders rose 3.3% and in January when such orders climbed by 1.2%.   This means that non-transportation orders fell 0.1% in January after having risen 0.3% in December.  These orders had been steadily rising at rates generally between 7.0-9.0% (red line) earlier in the year, but have slipped in recent months to a year-over-year increase currently of 4.4%.

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 0.8% in January after having declined 0.9% in December.  Over the course of the past year such orders have risen 4.1%.  These orders seem to be rising at a moderate pace which bodes well for continued sustained growth in investment spending and positive growth in productivity.

The backlog of orders rose 0.1% in January after having declined 0.1% in November.  If orders continue to climb consistently the backlog will climb as well, which will continue to boost production.   We are not looking for a lot of strength from the manufacturing sector in 2019, but we do expect it to continue its gradual uptrend.

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

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