December Durable Orders

Updated 26-Jan-07 08:58 ET

About this release

Highlights

December durable goods orders 3.1% (2% yoy), ex-transportation 2.3% (3.5% yoy).

Key Factors

Far more broad-based than expected. A strong welcome gain in ex-transportation -- only 2nd gain over 2nd half.
Huge Boeing aircraft orders 'only' left 27% rise in civilian and a 21% rise in defense aircraft orders.
Vehicle orders rose 7% for a third consecutive gain as total transportation orders rose 5%.
A strong 5% gain in machinery as primary metals rose 4.5%.
Capital goods orders rose 5.5% (3.7% yoy) as the core (ex-aircraft/defense) rose 2.4% (3.9% yoy).
Shipments rose 0.8% (-1.3% yoy) as inventories rose 0.4% and unfilled orders rose 2.3% (21% yoy).

Big Picture

Durable goods order growth has slowing (2% yoy) as business capital investment stalled over the second half of 2006 but ended with a strong December which may mark the awaited lift. Flush corporate balance sheets, high capacity use and rising exports remain strong underlying factors as reduced demand tied to auto and housing add to the slowed capital investment. The measure is volatile given the large costs of the goods included -- planes, capital goods and defense provisions. But now business confidence plays a larger role in directing the pace of capital investment and the strength of the manufacturing sector. A sustained downturn seems unlikely given the roaring pace in early 2006, expectations for stronger 2007 economic growth and the underlying fundamentals.

Category	Dec	Nov	Oct	Sep	Aug
Total Durable Orders	3.1%	2.2	-8.1	8.7	0.0
Less Defense	3.9	0.7	-6.4	7.3	-0.4
Less Transport	2.3	-1.0	-1.8	0.5	-1.3
Primary Metals	4.5	-1.9	-0.7	-3.1	-2.7
Machinery	5.0	-8.5	3.8	3.4	-1.0
Computers, Electronics	1.0	8.0	-9.8	2.2	-2.1
Electrical	-1.4	-2.7	2.2	4.4	-8.9
Transportation	4.8	10.2	-20.7	30.0	3.6
Topical Series
Capital Goods	5.5	3.6	-17.7	26.5	-0.8
Nondefense	9.0	-0.3	-14.4	24.6	-2.0
Nondefense/nonaircraft (core cap gds)	2.4	-1.0	-4.0	3.1	1.1
Defense Cap Goods	-17.5	38.5	-39.1	39.8	9.1

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Release Details

Durable Goods Orders

Importance (A-F): This release merits a B.
Source: The Census Bureau of the Department of Commerce.
Release Time: 8:30 ET around the 26th of the month (data for month prior).
Raw Data Available At: http://www.census.gov/ftp/pub/indicator/www/m3/index.htm.

The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.

Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers' durable equipment (PDE) -- the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.