Durable Goods Orders Disappoint

Durable goods orders dropped 2% in November after edging up 0.2% in October. A whopping 72.7% slide in defense aircraft orders accounted for the bulk of the weakness. Orders excluding aircraft and defense orders actually rose 0.8% during the quarter. The end of the GM strike showed up as a strong bounce back in motor vehicles and parts.

Core durable goods orders (excluding defense and aircraft orders) were up 0.1% in November after posting a nice 1.1% rise in October. This is critical as it suggests we may be hitting a bottom in businesses’ plans to invest.

The core shipments data shows that businesses have yet to rally their resources. Core durable goods shipments fell 0.3% in November after rebounding in October, and remain below the levels hit in the third quarter. Add the grounding of the 737 Max and we are now entering 2020 with a headwind instead of a tailwind on investment activity.

The phase one trade deal with China will allow businesses to move forward with some short-term upgrades to machinery and infrastructure. But we have yet to fully reverse the losses due to trade in 2019.

Bottom Line

Businesses remained skittish in November. That showed up in confidence surveys as well. Companies are now struggling to come to terms with what look like more lasting changes in trade relationships. Larger companies are adapting faster than small and midsize firms. This is showing up as higher costs in the supply chain.