Durable goods orders: more evidence of near-term weakness in the US economy
They keep calling it a ‘soft patch’ in my business; but when’s the data going to show otherwise? This soft patch is persistent, and durable goods orders confirm it into Q2 2011.
Note: The ‘all manufacturing’ orders Y/Y growth rate are available through March only in Datastream for the chart above; the nondefense capital goods ex aircraft orders are current through Aptil.
READ MORE AFTER THE JUMP!From the Census April preliminary release on durable goods orders and shipments:
New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent.
We know that the auto industrial production print was influenced by the supply chain disruptions stemming from the Japanese earthquake. This probably affected the durable goods orders and shipments as well. Furthermore, the big monthly drop was driven (partially) by a large 30% decline in nondefense aircraft and parts orders over the month.
But the gist of the report, in my view, was disappointing. Total durable goods shipments fell 1% over the month, while new orders plummeted 3.6%. This is a very volatile series, and the March growth in new orders was revised upward to 4.4% over the month from 2.5%; but the average growth rate in ‘core orders’ is showing holes.
Core durable goods orders, ‘nondefense capital goods excluding aircraft’ – a leading indicator of domestic investment spending on equipment and software – fell 2.6% over the month. Volatile, yes; but the real core goods orders turned negative, -0.33% on a 3-month average growth basis, furthering a downward trend that’s been in place since January 2011. The April figure was down 0.2% on a real basis compared to the January-March 2011 average – not a good start to Q2 2011.(The real series is constructed using the CPI durable goods deflator.)
The contributions to Q1 2011 fixed investment spending demonstrate that the entirety of fixed investment growth came from equipment and software, 0.8% quarterly contribution. (On data, you can view the contributions data in Table 2 of the release here or download the data for the entire report here.)
So when will this ‘soft patch’ end? Neil Soss today tells me that 2H 2011 will be quite the kicker, as the temporary supply chain disruptions to industrial activity wear off. We’ll see. It’s going to take quite a bit of growth in 2H 2011 to get the US back on track to the consensus 2011 growth forecast of 2.7% (according to Consensus Economics May report).
Rebecca Wilder
“We know that IP was influenced by the supply chain disruptions stemming from the Japanese earthquake. This probably affected the durable goods orders as well.”
I’m not following. Even if I expect my Durable Goods orders filled in the very near term, I wouldn’t cut back my US-based orders due to an earthquake in Japan. (I might get notice that the fill will be delayed–but if I’m expecting that, I order sooner, not later.)
If you were talking an Inventory decline, I could see that. (See backlog of deliveries.) But a cut in orders domestically doesn’t follow from an international problem.
What am I missing?
Hey Ken, I was referring to the auto industry specifically – I corrected that in the text – but I assume that if I can’t make it, I won’t order the parts. One of my friends needed a part from Toyota – the dealer told her that they could not get this part anywhere in the US! Toyota production is down, so orders for all inputs to that production process are likely challenged as well. Electronics parts are affected, too. Inventories were up pretty much across the board, but I did not report on that.
Rebecca
In a word (an economic word), “compliments”. If one durable thingie is of less use in the absence of another durable thingie you can’t get, then you may decide not to spend money on the available durable thingie.
A significant ammount of this weakness pre-dated the Japanese supply chain disruptions, especially for info tech goods. IT orders were already weakening and the IT inventory/shipments ratio has been rising for several months.
I know we can not get a clear answer quickly, but I keep wondering how much of this weakness reflects the impact of higher oil prices on the economy rather than supply chain disruptions.
Edmonds is talking about a very significant drop in new car sales in May and they think it is energy, not supply chain disruptions. I watch the auto ads and they are reintroducing price cuts and special deals and that gives the Edmonds forecast credence. Auto sales will be announced next week.