Capital Goods New Orders Confirm Red-Hot Production Sector
Summary
- New orders for durable goods, especially “core” capital goods orders, are a short leading indicator for the economy as a whole.
- March’s report showed a sector on fire, with core capital goods setting a new record.
- The improvement went beyond a mere rebound of pent-up demand, or a reflection of a poor comparison period.
- The upshot is that the production sector of the economy should be extremely strong at least through the summer.
Introduction
Durable goods new orders are one of the "official" leading indicators for the economy, giving us a good picture of where the producer side of the economy is likely to be in about 3 months. Yesterday's report on durable goods orders confirms that the manufacturing side of the US economy is white hot.
Let's take a look
For the month, orders (blue in the graph below) were up 0.5%. "Core" capital goods (red) increased 0.9% to a new high:
On a YoY basis, both were up over 10%:
And it isn't just a case of comparing against a poor month last March. The full 12-month rolling average, whether measuring March through March, or February (in 2020, the month just before the pandemic hit) through February, total durable goods orders were also up over 10%, and the core measure was up over 12%. In other words, even if we include the "lockdown" months of spring 2020 in the current 12-month comparison, orders were still much higher than during the last year of the last expansion. This is of a piece with the extremely good ISM manufacturing reports for the past several months:
As I wrote above, this helps tell us where industrial production (the King of Coincident Indicators) is likely to be in about 1 Quarter. Below are all three for the past nearly 30 years:
Conclusion
In other words, not only do we have a very strong production economy now, but it is likely to last at least through the summer.
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