This morning, the U.S. Department of Commerce released its latest data on durable goods orders, and the report was another indication that the U.S. economy continues to slowly press forward. Specifically, the report said that new orders for manufactured durable goods increased $12.4 billion (or 5.7%), to $232.1 billion, in February. The advance, which comes on the heels of a 3.8% decrease in the first month of 2013, marked the fifth increase in the last six months. The consensus expectation called for an advance of 4.6% last month.
When broken down into components, the latest durable goods orders data were semi-encouraging. Excluding transportation, new orders fell 0.5%, but when backing out defense orders, new orders advanced a healthy 4.5%. However, a bit troublesome was a 2.7% decrease in nondefense capital goods orders excluding aircraft and parts; the expectation was for a drop of only 1.1% in “core” capital goods. On the bright side, nondefense new orders for capital goods in February increased $7.4 billion (or 10%), to $80.8 billion. That was the largest increase in five months. Meantime, defense new orders for capital goods increased $3.3 billion (or 68%), to $8.1 billion, last month.
Going forward, the “core” capital goods figure should bear close watching, as it will provide a strong gauge as to what effect the recent tax increases and automatic spending cuts are having on spending budgets for capital goods. The aforementioned February increase in nondefense new orders for capital goods was an encouraging sign and may suggest that the prior concerns about the spending cuts and tax increases may not be as bad as some pundits had originally feared. Nonetheless, we should get more clarity in the next few durable goods orders reports, which will include the impact of the automatic spending that took effect on March 1st.
In conclusion, our sense is that the latest figures on manufactured durable goods orders are yet another indication that the U.S. economy is heading in the right direction, even if the improvement may still be at a measured pace. In fact, core capital goods shipments, which are used to calculate equipment and software spending in the gross domestic product report, increased 1.9% in February after a 0.7% decline in January, suggesting that business spending would again contribute to growth this quarter.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.