Durable Goods: The Soft Patch Continues

Friday, June 24, 2005 | 09:15 AM

May Durable Goods had a consensus expectation of +2.0%, and surged to a powerful +5.5%

However, all the upside action was courtesy of the Paris Airshow. The spike in Boeging's sales of civilian aircraft orders (+165%) accounts for virutally all of the Durable Goods increase.

Orders for core durable goods fell by 0.8%; orders for nondefense capital goods (excluding aircraft) fell by 2.3%;  Orders for technology fell by 1.2% in May -- a modest improvement after April's 6.0% drop. Computer orders fell by 7.0% . Communications equipment orders slipped by 0.5%, agian an improvement from April's 19.2% plunge. The biggest positive was inflation-adjusted orders for nondefense capital goods (excluding civilian aircraft) were up by 4.9% in May -- but even this number reflects a drop off -- after gains of 6.3% in April, 9.4% in March and over 12% in the preceding two months, plus 4.9% reveals a loss of momentum.

Overall, inventories of durable goods increased by 0.3% in May. MFR's Josh Shapiro observes "results are consistent with the notion that an inventory correction is weighing on manufacturing output in Q2."

Back out Transports, and then what? We are left with Durable Goods of -0.2%.

What does this all mean? Expect another quarter of subdued capital spending growth, and commensurately modest GDP gains.

So much for that soft patch, huh?

Friday, June 24, 2005 | 09:15 AM | Permalink | Comments (3) | TrackBack (0)
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The data in this report is all nominal data -- there are no inflation adjustments.

The Conference Board in creating the leading index does deflate total orders for capital goods and consumer goods. But that data is for last months orders, and they have have had troubles with the deflator for capital goods.

One of the problem is that the deflator can make really big swings from month to month because of changes in the composition of capital goods. If one month you have big aircraft orders and low IT orders the deflator can surge and reverse the next month when the composition of orders reverses.

I back out the Conference Board estimate of the deflator for total capital goods orders, and as of April the year over year change in this estimate of the deflator was plus 7.0% -- 5.0% for the 3 month moving average. A year ago the comparison was 1.0% and the previos peak was 2.0% in September 2000.

Posted by: spencer | Jun 24, 2005 1:41:17 PM

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