Durable-Goods Orders Rose in December on Strength in Consumer Durables

New orders for durable goods increased 1.2 percent in December following a 1.0 percent gain in November. For all of 2018, total durable-goods orders increased 7.3 percent. If aircraft are excluded, new orders for durable goods increased 0.9 percent in December following a 0.3 percent gain in November, making December’s gain the fifth in seven months. Durable-goods orders excluding aircraft are just 2.2 percent below the all-time high recorded in August 2018 (see chart).

Within the report on new orders for durable goods are data on new orders for capital equipment, or business investment. This subcategory is particularly important for two reasons. First, business investment can have a major impact on future productivity trends, and productivity is critical for helping offset cost increases as well as raising living standards over the long term. Second, capital-goods orders are important as they tend to be early indicators of turns in the business cycle. Real new orders for core capital goods — that is, real nondefense capital goods excluding aircraft — is one of the indicators in AIER’s Leading Indicators index.

On a nominal basis, new orders for core capital goods fell 0.7 percent in December following a drop of 1.0 percent in November. December saw the fourth drop in the last five months. For all of 2018, orders of core capital goods are up 6.1 percent.

The results for the categories of durable goods shown in the report were mixed in the latest month. Among the industries showing increases, motor vehicles rose 2.1 percent for the month and were up 8.3 percent in 2018, fabricated metal products gained 0.3 percent (9.0 percent for 2018), and the catchall “other durables” category increased 0.9 percent in December and was 3.2 percent ahead of last year.

Categories showing declines for December are primary metals, down 0.9 percent, putting the year-to-date gain for 2018 at 15.0 percent; computers and related equipment, off 8.3 percent in December and down 6.0 percent from 2017; communications equipment, down 5.0 percent for the month but up 7.3 percent for the year; electrical equipment and appliances, off 0.1 percent in December but up 5.4 percent for 2018; and machinery, 0.4 percent below November but 5.1 percent higher for all of 2018.

Other data out today include the latest weekly initial claims for unemployment. For the week ending February 16, claims totaled 216,000, down 23,000 from the prior week. The four-week average came in at 235,750 versus 231,750 in the prior week. While claims rose in the last few weeks, they may be moving lower again and remain at historically low levels, suggesting the labor market remains very tight.

Today’s data are slightly positive overall. The report on durable-goods orders suggests that demand remains relatively solid, though the recent weakness in orders for core capital goods is a concern. The weakness in capital-goods orders may reflect heightened uncertainty for business leaders over tariffs and trade policy as well as global economic conditions. Other data over the last several weeks have been somewhat softer, and data have been limited by the government shutdown. The most likely path remains continued economic expansion, but a heighted degree of caution is warranted.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.