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Durable Goods Orders Down, Business Shipments Up, GDP Estimate Down

Posted by Joseph Trevisani on Oct 27, 2015 6:25:04 PM

All three major category of durable goods orders fell in September for a second month and shipments of business goods that are counted in the government’s GDP calculation slipped to marginally positive in the third quarter, diminishing the prospects for economic growth.

The Commerce Department reported on Tuesday that new orders for goods designed to last three years or more dropped 1.2 percent, less than the -1.5 percent median forecast in the Bloomberg poll of economists. The August result was revised down to -3.0 percent from -2.0 percent.  Order were 3.6 percent lower in the year to September, the sixth drop in a row.

Non-defense capital goods excluding aircraft, an oft used stand in for business investment unexpectedly declined 0.3 percent, missing the 0.2 percent estimate by a wide margin, and the August figure was adjusted sharply lower to -1.6 percent from -0.2 percent. These order were 7.9 percent lower in September than a year earlier, the ninth straight decrease. 

Durable goods orders ex-transport, in practice orders without the civilian aircraft sales of the Boeing Company of Chicago, declined 0.4 percent, well under the flat forecast and revision tumbled the August number to -0.9 percent from the initially reported 0.0 percent.  The annual change in ex-transport orders was -5.29 percent, the eighth consecutive monthly drop.

The ex-transport or ex-aircraft it is also called data reflected a 35.7 percent slump in bookings for commercial aircraft in September following an 11.2 percent decrease the prior month, according to the Commerce Department. 

Boeing said it recorded 29 new orders for aircraft in September, down from 52 in the prior month. Deliveries climbed to 77 from 64.

Shipments of non-defense capital goods, the GDP included statistic, rose 0.5 percent in September, slightly ahead of the 0.4 percent prediction, but the prior month was  revised down to -0.8 percent from -0.2 percent.,

So far third quarter estimates have missed actual performance by 1.2 percent. The median forecasts for July, August and September totaled 1.3 percent. To date the performance for the quarter is 0.1 percent, July 0.4 percent, August -0.8 percent, September 0.5 percent. There is one final revision to today's September result due in November. Both third quarter revisions have been negative. 

Based on today's numbers for capital goods shipments, the Atlanta Federal Reserve decreased its GDPNow estimate for the third quarter to 0.8 percent from 0.9 percent.  The final estimate will be issued tomorrow after the advance report on U.S. international trade.

Inventory build accounted for a substantial portion of second quarter GDP. When that product overhang in the third quarter is combined with weak overseas interest in U.S manufactured products, partially incurred by the stronger dollar, and modest domestic demand, business seem to be waiting for sales to draw down stockpiles and surer signs of consumer interest before again increasing investment spending. 

Industrial production, which includes manufacturing, mines and utilities dropped 0.2 percent in September, its second negative month in a row, according to the Federal Reserve. Manufacturing output was also negative for the second month in September.  

Durable goods inventories dropped 0.3 percent in September, and unfilled orders declined 0.6 percent.

Automobile demand remains positive. The Commerce Department reported a 1.8 percent gain in orders in September fueled by extensive sales and credit promotions. Total sales of cars and light trucks ran at an 18.1 million annualized rate last month, the highest since 2005, according to Ward’s Automotive Group, as American replaced a fleet that had become the oldest on record.  .

The Federal Reserve ends a two day meeting tomorrow as policy makers discuss whether to raise interest rates this year for the first time since 2006.

The Fed governors surprised the markets in September when they declined an expected 0.25 percent increase in the Fed Funds rate, citing weak overseas economic growth and subdued U.S. inflation. No action is expected at Wednesday’s meeting.  

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg



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