October Durable Goods By Sector: Bad, Worse and Horrible

The headline for the durable goods report was not very bright this morning - Durable goods orders slid 8.3 percent in Oct. (Yahoo! News):

New orders for U.S.-made durable goods tumbled much more than anticipated in October on a big drop in civilian aircraft but were also down unexpectedly when transportation was stripped from the total, a government report suggesting economic weakness showed on Tuesday.

Durables goods — big-ticket items expected to last three years or longer — fell 8.3 percent, the biggest drop since July 2000. The decline was propelled by a 21.7 percent fall in transportation orders, the Commerce Department said.

But even excluding transportation orders, durables declined 1.7 percent as manufacturing, fabricated metal, and computers and electronics orders all slid.

As is our custom, however, we like to dig a little deeper into the data to determine whether there are any bright spots. Instead, what we saw for the most part was rising inventories and falling orders and shipments. All charts below are based on information provided by the U.S. Census Department and collected by Stock Market Beat.

Although we last said it looked like it was time to play defense, even that sector is giving back much of its strength.

Also consider computers and related products. Both shipments and orders are falling through the floor. The potential bullish case is that customers are holding off on equipment upgrades in anticipation of Microsoft (MSFT) Windows Vista. However, given the strong recent performance at Dell (DELL) and Hewlett Packard (HPQ), this bullish case may be priced in already. That could leave investors holding a heavy bag if the Vista orders don’t come in as expected.

Communications equipment, which had formerly been bucking the trend in technology, has also seen a sharp reduction in order growth.

Semiconductors may be the bright spot, but at this point it seems too early to tell given that the one strong data point is balancing several weak ones. At the least, the strength could support the argument that slowing computer sales and orders are Vista related, and that the semiconductors will be needed to build computers in a few months.

Electrical equipment and appliances also look strong, which is probably due at least in part to strong holiday sales of flat-panel televisions.

There seems to be few places to hide.