Friday, April 24, 2009

5.8% Two-Month Increase in Capital Goods Orders is Strongest 2-Month Gain in More Than 4 Years

According to data released today from the Department of Commerce, orders for non-defense capital-equipment goods excluding aircraft rose 1.5% in March after a 4.3% gain in February. Such core capital-goods orders are considered the best gauge of capital spending by businesses, and are also considered a leading economic indicator. The two-month increase of 5.8% in new orders for capital goods was the strongest two-month gain in more than four years, since the 6.5% two-month increase for December 2004 and January 2005.

Thanks to Larry Kudlow for the alert on this.


At 4/25/2009 2:48 PM, Anonymous jill said...

Another perspective from Haver Analytics....

There seems to be no letup in the factory sector's distress. That's the indication from a 0.8% slip in new orders for durable goods last month. While the magnitude of the slip was a positive surprise versus Consensus expectations for a 1.5% decline, February's gain was lessened to 2.1% from 3.7% reported initially. The best that can be said about the latest figures is that the downward momentum in orders has slackened to a -24.2% annual rate during the last three months versus the 50% rate of decline as of January.

· Lower orders for transportation equipment again led the decline in overall bookings with a 1.4% decline. Orders for motor vehicles fell hard and they are down by more than one-third during the last year. Orders for computers also fell a sharp 2.0% (-21.3% y/y) and primary metals bookings dropped 3.2% (-43.2% y/y). There were glimmers of light elsewhere in the report, but they were just faint ones. Electrical equipment orders made up their February decline with a 1.8% (-9.7% y/y) increase and machinery orders slipped just 0.1% (-26.3% y/y). Their strong February increase, however, was halved to 7.1%.

· Perhaps another glimmer was the 1.9% increase in orders for nondefense capital goods. That followed a 4.9% jump during February. Orders excluding aircraft also recovered 1.5%. During the last ten years there has been an 80% correlation between the y/y change in nondefense capital goods orders and the change in equipment & software spending in the GDP accounts. The correlation of the GDP figure with capital goods shipments is, as one would expect, a larger 92%.

Shipments of durable goods continued to the downside at a steady rate. They fell 1.7% last month and they are off at a 27.9% annual rate during the last three. That weakness has been accompanied by a 30.0% three-month rate of decline in industrial production of durable goods. During the last ten years there has been an 80% correlation between the change in shipments of durable goods and the change in durables industrial production.

· Inventory accumulation continues to respond to these production cuts. Inventories of manufactured durables fell 1.1% during March, about the same as they did during the prior two months. That brought the annual rate of decumulation to 13.1% during the last three months. That nearly matches the rate of decline during the 2001 recession but there's no end in sight if shipments don't show a sign of stabilization.

· The durable goods figures are available in Haver's USECON database.

What will Kudlow say about durable goods orders after a complete shutdown of production by GM for the balance of the second quarter.
Vehicle production will be down 45%compared to last year, even factoring in Ford’s news that it would up production by 25%. The GM shutdown will ripple across the parts industry as well.

Yes, I know, Kudlow will say its a MUSTARD SEED.


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