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April Durable Goods--Aircraft Fly but Little Else

Posted by Joseph Trevisani on May 26, 2016 3:55:55 PM

Orders for durable goods rose sharply in April propelled by a surge in civilian aircraft but business investment fell and a large negative revision to shipments of capital goods may have restrained first quarter economic growth.

New placements for long-lasting manufactured items jumped 3.4 percent, according to the Commerce Department. The median estimate was for a 0.5 percent increase. 

Orders for civilian aircraft, largely those of Boeing Company of Chicago, climbed 64.9 percent in April and accounted for 85 percent of the gain in overall orders.

Orders in the transportation sector rose 8.9 percent. The jump in aircraft orders will not translate into an immediate gain in GDP as orders usually take five years to be completed. Automobile orders rose 2.3 percent. 

Excluding transportation, new orders for durable goods rose 0.4 percent in April. Inventories of these goods declined 0.2 percent, the fourth drop in a row. 

Durable goods orders in general are subject to wide monthly variation and restatement, largely having to do with the time lag in acquiring complete figures from manufacturers. March’s orders more than doubled to 1.9 percent from 0.8 percent on revision, while February's  were revised down to -3.3 percent from an initial report of -2.8 percent.  

Capital goods orders excluding the defense and aircraft industries, an oft used indicator of business spending usually called  'core capital goods',  fell 0.8 percent April. Economists had predicted a 0.3 percent rise.   Updated information brought the the March 0.1 percent gain down to  a 0.1 percent loss.   Annual ‘core capital goods’ sales were down 6.7 percent in April and have fallen in 15 of the late 18 months. 

Business capital spending has dropped for three months in a row and in five of the last six, indicating that U.S factories have not emerged from their more than yearlong slowdown brought on by a strong dollar and anemic foreign demand.  

Manufacturing accounts for about 12 percent of the U .S. economy.

Shipments of these same 'core capital goods rose 0.3 percent in April better than the 0.1 percent projection for the first gain in seven months.  But March's initial 0.5 percent increase, a contributory factor to first quarter GDP, was revised substantially lower to -0.3 percent.  On an annualized basis these goods shipments declined at a 10.6 pace from February through April.

That large downward shift in business consumption in March, the last month of the first quarter, could detract from economic growth in the first three months of the year.

Currently the forecast is for the first quarter’s initial estimate of 0.5 percent annualized GDP expansion to be revised up to 0.9 percent in tomorrow’s 8:30 am release from the Bureau of Economic Analysis. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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