January 2018 Durable Goods Orders

Orders for durable goods declined in January 2018 according to the Census Bureau.  Falling 3.7 percent to $239.7 billion, this indicator gave back all of December’s downwardly revised gain of 2.6 percent (originally 2.9 percent) and then some.  This most recent setback took the year-over-year number down from 11.3 percent to 6.8 percent, signaling some deceleration from the nation’s factory sector. 

Aircraft orders played a role in the monthly letdown, but there were more important disappointments as well.  Orders for aircraft were elevated for several months, so the 28.4 percent decline in nondefense aircraft and parts was not a total surprise.  Planes are expensive, so a single order can skew the monthly tally. Defense aircraft and parts orders (which are also volatile) fell 45.6 percent, but that followed an uptick of 47.8 percent in December.  Standing out the most to Atlas is a line more fundamental to the overall economy: nondefense capital goods orders excluding aircraft (aka core capital goods orders).

Core capital goods orders declined to start 2018, which is what they did to end 2017.  Falling 0.2 percent, this measure of business confidence fell 0.6 percent from a month earlier.  Further adding to signs of economic moderation, shipments of core-capital goods (a coincident indicator) decelerated to just 0.1 percent from 0.7 percent in December.  Businesses could be losing some of their confidence in the strength of America’s current economic expansion.

As we wrote last time regarding durable goods orders, this is an important indicator because it measures actual behavior and not opinion.  While many surveys suggest businesses and consumers feel good about the current economic situation, fewer dollars are being spent on capital investment.  Atlas watches this indicator because it has forward-looking as well as coincident components, and it tends to follow the contours of the business cycle.  As of right now, it appears that contour is beginning to flatten some.