December 2017 Durable Goods Orders

Durable Goods Orders jumped in December 2017 according to the Census Bureau.  Rising 2.9 percent to $249.4 billion, the most recent uptick followed November’s upwardly revised tally of 1.7 percent (originally 1.3 percent).  From the vantage point of this indicator’s headline, the outlook for the economy is positive as orders for wares expected to last at least three years have improved in four of the last five months; however, there was some weakness beneath the initial print.

Aircraft orders skewed December’s release.  Even after an outsized jump of 14.1 percent for nondefense aircraft orders in November, they increased another 15.9 percent to end the year.  Further skew came from defense aircraft and parts which rocketed up 55.3 percent!  Distortions like this happen from time to time because these orders (military and civilian) are so expensive and irregular.  Since aircraft can have such a large influence on the tally, Atlas likes to look at how other businesses are behaving as well.

Looking at the “core” portion of this indicator gives a sense of how confident businesses feel. Unfortunately, nondefense capital goods orders, excluding aircraft, declined 0.3 percent, giving back all of the prior period’s gain and then some.  However, the year-over-year trend rose 5.9 percent, so the upward trend is firmly in place.

Atlas considers it important to monitor the core portion of this release in the months ahead since there was some decay in the core segment.  Many “soft” sentiment indicators look optimistic, but these reflect answers to questions, not actual behavior.  Capital investment and consumer spending drive the economy, not public opinion.  For now, there is no need for alarm, but Atlas has a watchful eye on this indicator since it tends to lead the contours of the business cycle.