Tech Sector Durable Goods Numbers Better Than They Appear

by: William Trent, CFA

Although the headline number (-4.8 percent) for yesterday’s durable goods report appeared weak, we don’t like to rely on monthly data, which can be volatile and which is adjusted for seasonality and other factors in ways that aren’t disclosed.

Instead, we prefer to look at all economic data on a year/year basis. By that measure, orders were up a healthy 7.5 percent. Even better, backlog increased 22.7 percent compared to a 2.4 percent growth in sales and a 3.0 percent growth in inventories.

Turning to the tech data, it was better than the overall data for shipments and orders, but the backlog is growing slower than sales, and inventories are growing significantly faster than for the economy as a whole. Our concern is that double ordering may be responsible for the order growth, which would result in a glut.

April Durable Goods Report Data for Technology Sector (Source: US Department of Commerce)

Durable Goods Report

Order, backlog and inventory data are not available for semiconductors.