Business Investment Flat in 2020

Orders for durable goods edged up a much smaller-than-expected 0.2% in December following modest, upward revisions to November. Orders ended the year 7% in the red compared to 2019 - not a great year to begin with. The trade war with China dampened business investment and cost more than 200,000 manufacturing jobs in 2019 before the onset of the COVID crisis.

December gains were uneven. Solid increases in machinery, communications equipment and motor vehicles offset tepid gains or a contraction in other categories. Private aircraft orders plunged more than 50% after rebounding in September and October. Nondefense aircraft and parts orders and shipments remain abysmal, despite the return of the 737 Max. (Remember when that plane was grounded?) Defense aircraft orders also declined significantly for the month and were in the red by nearly 30% for the year.

Core durable goods orders, which signal plans for business investment, were up 0.6%, closer to expectations. They edged up 1.8%, for the year, which is still weak given the sluggish base of 2019.

Core durable goods shipments, which feed directly into GDP for the quarter, rose 0.5% in December and will be higher for the quarter. They also added 0.5% for the year, essentially flat for 2020.

Real GDP will be released for the fourth quarter tomorrow. Look for a print of about 3% GDP growth. This is down quite significantly from the hopes of many this summer that we would end the year on a strong note. Our forecast has always assumed a toll from a severe wave of COVID infections in the fall and winter months.

Bottom Line
Businesses became more cautious along with consumers as the year 2020 came to a close. We are entering the first quarter of 2021 with even less momentum.

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