January 28, 2020

Durable goods orders rebounded by 2.4% in December after having declined 3.1% in November.   As always this is a very volatile series.  Over the course of the past year durable goods orders have fallen 3.7%. Clearly, trade is taking a toll on the manufacturing sector.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was  the case in recent months as transportation orders rose 7.6% in December after having dropped 8.3% in November.  This means that orders for durables ex transportation fell 0.1% in December after having fallen 0.4% in November..  These orders rose steadily at rates generally between 7.0-9.0% (red line) for most of 2018 but have slipped in recent months to a year-over-year decline currently of 0.9%.  Higher tariffs are clearly taking a toll on the factory sector.  Having said all of that the worst may be over.  This series has flattened out in the past six months or so..

Economists are also interested in capital goods orders so we can get some sort of a handle on the investment spending portion of GDP.  But even capital goods orders can get blown around from one month to the next if there is a huge defense order or if there is a big airline order.  Orders will rise very sharply one month, only to decline almost as sharply in the subsequent month.  Thus, the focus is typically on non-defense capital goods orders ex air.  These orders fell 0.8% in December after having risen 0.1% in November.  Over the course of the past year such orders have risen 1.0%

.The backlog of orders declined  0.1% in December after having fallen 0.6% in November .  In the past year the backlog has fallen 2.2%.  This means that manufacturers were filling orders at a faster pace than orders were coming in so the backlog declined.

.We think that the manufacturing sector is basically as export orders have plunged.

Stephen Slifer


Charleston, SC