Durable Goods Orders For November Better Than Expected

by: Doug Short

The December Advance Report on November Durable Goods was released Friday morning by the Census Bureau, but I was so swamped with other economic data that I'm only just now getting around to posting my monthly update. Here is the Census Bureau's summary on new orders:

New orders for manufactured durable goods in November increased $1.6 billion or 0.7 percent to $220.9 billion, the U.S. Census Bureau announced today. This increase, up six of the last seven months, followed a 1.1 percent October increase. Excluding transportation, new orders increased 1.6 percent. Excluding defense, new orders increased 0.8 percent.

Machinery, up three consecutive months, had the largest increase, $1.0 billion or 3.3 percent to $32.0 billion.
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The latest new orders at 0.7 percent was above the Briefing.com consensus of 0.2 percent. Year-over-year new orders are down 4.1 percent.

If we exclude both transportation and defense, "core" durable goods orders rose 1.8 percent, down from the previous month's 2.2 percent. Year-over-year core goods are down 0.2%.

The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two.

An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.

An overlay with GDP shows some disconnect in recent quarters between the recovery in new orders and the slowdown in GDP — another comparison I like to watch closely.

The next chart shows the percent change in orders with and without transportation since the turn of the century.

Now let's exclude defense orders.

And finally, let's look at core durable goods orders, excluding both Transportation and Defense.

In theory the durable goods orders series should be one of the more important indicators of the economy's health. But its susceptibility to major revisions of the previous monthly data suggests caution in taking the data for any particular month too seriously.

It's also worth noting that Durable Goods is a rather small component of GDP. How small? This closing chart shows the shrinkage over the past two decades.

I suppose the favorable interpretation is that durable goods just keep getting more durable and capable and thus are less frequently replaced or upgraded.