September Durable Orders

Updated 19-Nov-09 19:26 ET

Highlights

Durable goods orders rebounded in September as orders increased 1.0% compared with -2.6% growth in August. The growth in September was accurately predicted by the consensus.
The end of the Cash for Clunkers stimulus plan has not resulted in the increase in motor vehicle orders that were expected. Motor vehicle orders declined 0.1%. Inventories at car dealers remain low and dealers are not willing to restock their lots as it seems unlikely that consumer demand will pick up through the rest of the year.
Excluding transportation goods, orders increased 0.9%. The difference in the orders excluding transportation and the headline is due to the military stepping up its purchases of defense aircraft. Defense aircraft orders surged 12.5%.
Manufacturers inventories remain low. Total inventories declined 1.0%. However, excluding transportation inventories declined only 0.5%.
Capital good inventories declined 1.7%, but the decline was mainly due to a drop in inventories of nondefense (-3.1%) and defense (-2.9%) aircraft and parts.
Inventories of nondefense capital goods excluding aircraft declined only 0.7%.
Total durable good shipments increased 0.8%, but almost all of the increase was in the transportation sector as shipments excluding transportation fell 0.8%.

While the headline data suggests strong growth, most of the increase was in the defense sector. Durable goods orders excluding defense rose a more modest 0.5% but is still well above the -2.6% witnessed in August.
Business investment growth took off in September and followed many firms' statements regarding new initiatives to take advantage of low interest rates and higher return on capital potential. Orders for nondefense capital goods excluding aircraft surged 2.0% after declining 0.8% in August.
While the increase in business investment was expected by the consensus, given the continued volatility in the investment sector, the market will find it reassuring that expenditures were on track.
Interestingly, computer purchases posted modest gains in September. It was thought that consumers and firms would hold off on purchasing new computers until after the October release of Windows 7.

Durable goods orders trends were very weak in late 2008 and early 2009. That reflected a collapse of confidence in the business sector and poor credit market conditions. The rate of decline has eased and there has been some intermittent increases of late that suggest the worst of the downturn is over. Still, the business investment outlook can be considered weak.

Category	SEP	AUG	JUL	JUN	MAY
Total Durable Orders	1.0%	-2.6%	4.8%	-1.1%	1.3%
Less Defense	0.5%	-2.6%	4.2%	0.8%	0.9%
Less Transport	0.9%	-0.4%	0.9%	2.6%	0.8%
Transportation	1.1%	-9.1%	17.7%	-11.9%	2.9%
Capital Goods	3.7%	-6.5%	8.2%	-5.6%	9.1%
Nondefense	2.5%	-7.7%	7.0%	-0.2%	9.1%
Nondefense/nonaircraft (core cap gds)	2.0%	-0.8%	-1.3%	3.8%	4.3%
Defense Cap Goods	10.0%	0.7%	15.9%	-29.8%	7.1%