Durable Goods Report Shows Weakness

by: Karl Denninger

What's going on with manufacturing?

New orders for manufactured durable goods in November increased $7.5 billion or 3.8 percent to $207.0 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a slight October increase. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders increased 3.7 percent.

All transportation, basically. Shipments were down, which isn't so good either. But what's disturbing in this report is the inventory level, now standing at $368.8 billion and an all-time record.

I don't like that number one bit -- especially when you look at it in the context of the earnings warnings we've been getting. Odds are good that we're right into the maw of a peak earnings cycle with record inventories, and that's a tinderbox. There will be more on that in the annual review ticker, out next week.

My favored series in the durables report -- computers and communications gear -- has rolled over. Communications equipment new orders collapsed last month, down 10.3% with computers right behind it at -6%. If you remember I noted that we had a two-month positive move in the latter last month, but that we needed three to make a trend. That's out the window now and we're back to neutral on that indication, while communications remains negative. Neither is good for intermediate-term hiring activity.

The transport gear new orders was almost all aircraft, but you have to be very, very careful believing much about this series in terms of its actual impact. It's extremely volatile with double-digit swings month-over-month being very common, driven by the insane per-unit cost of these items. As such, I put little or no stock in this when it comes to trend value.

The big problem is found right near the bottom -- Non-defense capital goods ex-aircraft have shipments down for three consecutive months, and now orders are down the last two out of three. While this report isn't a disaster, it's definitely weak.