January 2020 Durable Goods Orders

If you’re like most Americans, it is easier to buy durable goods when you believe your economic prospects are solid.  These items last three years or longer, so they tend to be expensive and sometimes require financing to complete the purchase.  Atlas tracks this indicator’s orders as a way of looking for economic developments to come since orders tend to become output in the not so distant future. 

At first glance, the Census Bureau’s January 2020 release of durable goods orders leaves something to be desired, but a deeper look reveals some optimism.  This forward-looking indicator declined 0.2 percent after jumping an upwardly revised 2.9 percent (originally 2.4 percent) in December.  Transportation-related orders hurt the headline; without them, the tally was up 0.9 percent in January.  Unfortunately, the headline trend is negative, falling 2.3 percent from a year earlier.

Before things start sounding too dour, let’s look at Atlas’ favorite line in the report.  Nondefense capital goods orders excluding aircraft gained 1.1 percent in the period after falling 0.5 percent in December.  Atlas sees this as a barometer of business confidence.  Firms spend money on expensive equipment when they expect a return on their outlay.  In the past year, this category has gained 1.4 percent, a nice contrast to the headline’s negative trend.

Durable goods orders will be worth watching in the months ahead.  More specifically, watching how firms change their new orders should provide some insight into how companies are reacting to the Coronavirus.  Are the headlines overly pessimistic or are firms really curbing their spending?  One way to answer this question will be to pay attention to the next several durable goods orders releases.