January 2019 Durable Goods Orders

Orders for wares expected to last longer than three years improved for a third consecutive month in January according to the Census Bureau.  Their measure of Durable Goods Orders rose $900 million or 0.4 percent.  However, even after three months of increases, this indicator is not yet back to the September 2018 level because the 4.3 percent drop in October’s reading has yet to be fully regained.

Atlas goes immediately to the second to the last page of the report each time it is released.  This is where the core version of this report is found.  On one of the report’s lines, the Census Bureau strips away aircraft and defense spending from the businesses’ capital outlays; they are excluded because airplanes are expensive and tend to be ordered in clusters, thus skewing monthly figures,  and military spending is sensitive to geopolitics, not the business cycle.  What is left is a proxy for business investment, the second largest component of gross domestic product (GDP). 

After two monthly declines, these core capital expenditures rose.  Firms increased equipment outlays by 0.8 percent.  While this does not make up for losses of 1.1 percent and 0.9 percent in November and December respectively, it is a step in the right direction.

In the last iteration of this indicator, Atlas mentioned concern about the falling core capital goods orders and its parallel trajectory to other economic measures we watch.  While the uptick in the core measure is an improvement, it was not large enough to dissuade our caution.  Nevertheless, it did not exacerbate concerns and left us optimistic about the next release.

Durable good orders are a forward-looking indicator.  In most cases, these requisitions will one day soon become output.  The direction of orders can act like a canary in a coal mine if businesses grow less enthusiastic and stop ordering long-lasting wares.  For now, no such trend is obvious, so America’s economic trajectory is most likely still rising and inclined to remain so for at least the next few quarters.