Aircraft Orders Buoy Durable Goods While Core Orders Show Weakness

Durable goods orders rose 1.2% in December, after being revised up for the previous period. All of that gain was concentrated in transportation orders, with a 28.4% monthly surge in nondefense aircraft orders alone. We also saw some pick up in orders for vehicles and parts, despite a January sales drop in those categories. It is notable that the durable goods data was significantly delayed by the 35-day government shutdown.

Core durable goods orders, which excludes the volatile aircraft and defense sectors, and tracks with business investment plans, fell a disappointing 0.7% during the month. That does not bode well for business investment in early 2019 and, unfortunately, confirms survey data on the manufacturing sector. Orders in both January and early February in the surveys softened considerably.

Shipments of core durable goods rose 0.5%, and is still up nearly 7% from a year ago, which continues to support fourth quarter GDP growth in the mid-2% range. The key to determining fourth quarter GDP estimates, which have also been delayed, is the trade data. Container traffic reports suggest that some importers attempted to stock up on goods from China to hedge against fears of yet another round of tariffs. The administration has since backed down from those threats.

Bottom Line

The orders data confirms other indicators we have seen since the start of the year that the manufacturing sector is slowing, but not imploding. The shipments data is better, suggesting that business investment has continued, but not at the pace that had been hoped for in the wake of tax cuts.