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Durable Goods Orders, Business Investment Reverse

Posted by Joseph Trevisani on Sep 24, 2015 10:23:00 AM

New orders for durable goods fell in August after two strong months, and business investment stalled as U.S. and global equities plunged and financial markets turned more volatile than at any time in the past four years.  

Placements for goods designed to last more than three years, from toasters to automobiles clothing and aircraft, fell 2.0 percent after rising 1.9 percent in July and 4.1 percent in June, according to Commerce Department information Tuesday.  Economists in the Bloomberg survey had forecast a 2.3 percent gain. Annual orders were down 1.9 percent on the month, the fifth staight negative month.

American consumers and business owners may be responding with caution to the 6.6 percent fall in the Dow and S&P averages in August, and the surge in market volatility. The Chicago Board Options Volatility Index, known as the VIX, rocketed to 40.74 on August 24th, the highest it has been since September 2011. Global market turmoil is probably reflected in declining U.S. orders as well.

Since midsummer the Shanghai Composite Index has lost 39 percent, though it remains 59 percent higher over two years. In Europe the German Dax lost 11.7 percent in August, the Paris CAC 40 10.5 percent and the U.K FTSE 7.5 percent. Commodity prices also touched a more than 15 year low in August adding to worries that the global economy is heading for a period of weak or negative growth. 

Bookings for non-defense capital goods minus aircraft and parts, an oft used proxy for business investment, dropped 0.2 percent 'August, as expected, following a 2.1 percent gain in July that was originally reported at 2.2 percent. These orders had increased a combined 3.6 percent in June and July, the best two month gain in a year. 

Business orders have faltered this year, despite the rebound in June and July, averaging   -0.2 percent a month. This compares to the 0.5 percent monthly average last year and the 0.2 percent average gain in 2013. 

Weakness in business orders is evidenced in the annual figures as well. Orders were off 4.0 percent in August following July's 3.9 percent decline and have been negative for eight straight months, the longest drop since the recession. 

Durable goods orders excluding civilian aircraft were flat on the month, slightly under the 0.1 percent median prediction. July's increase was reduced to 0.4 percent from 0.6 percent. Annual orders were off 3.9 percent in August, the seventh negative month in a row.

Commercial aircraft orders dropped 5.9 percent in August after falling 8.7 percent a month earlier. Boeing Company of Chicago reported 52 new aircraft orders in August, down from the 101 orders placed the previous month. 

Demand for automobiles, for most American their second biggest ticket item, which in the past months has supported durable goods orders, largely due to the plentiful cheap financing offered by manufactures as they attempt to clear inventory, also slowed in August, rising 1.5 percent, after having climbed 4.9 percent in July. August’s 17.72 million annual pace was the highest rate in a decade after increasing. Sales are expected to fall 1.5 percent in September when those numbers are reported by Ward’s Automotive Group on October 1st.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

dgoods ex trans yoy sept 24

dgoods ex trans yoy sept 24 j

cap goods ex yoy sept 24

vix sept 24

 

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