Aircraft Orders Lift Durable Goods

Durable goods orders jumped 3.4% in January, after being revised up slightly for the month of December. Durable goods orders are now up 4.5% from a year ago and have now risen for nine consecutive months in a row. Strong gains in nondefense aircraft, which jumped nearly fivefold during the month, accounted for much but not all of that strength. But, and this is key, orders for aircraft remain down nearly 60% from weak, year-ago levels; that was when the 737 Max by Boeing was still grounded.

New orders excluding transportation rose a solid 1.4% during the month. Defense orders jumped more than 20% after declining in December. That gain was concentrated in a 63.5% surge in orders for defense aircraft and parts.

Core capital goods orders, which strip out the volatile aircraft and defense orders to provide better insights into where business investment is going, rose 0.5% in January. Core capital goods orders rose 8.3% from a year ago. Orders for computers and related products surged 8.7% during the month and 20% on the year. Orders for communications equipment fell nearly 10% in January, but are still more than 14% higher compared to last year. Investment in information equipment has surged during the pandemic to accommodate working from home and the shift to learning online instead of in schools. Demand for tablets as well as notebooks has been strong.

We saw strong gains orders for appliances, primary and fabricated metals. That reflects the ongoing strength in the housing market and demand for new vehicles. Problems in the supply chain for new computer chips have forced some vehicle plants to cut production despite strong demand in recent weeks.

Core capital goods shipments rose a more substantial 2.1% in January. That should help boost overall business investment in the first quarter. Gains were broad-based with the exception of vehicles; manufacturers are suffering from supply-chain problems.

Shipments of communication equipment weakened at the start of the year after a strong end to 2020. Shipments of computers and related equipment posted the strongest month-on-month gains. That reflects plans by many companies to retain a hybrid of work-from-home, post-pandemic.

Separately, real GDP growth was revised up a tenth of one percent to 4.1% in the fourth quarter. The revision reflects upward revisions to residential investment, which has been on a tear, a larger than previously reported gain in inventories and a smaller than initially reported contraction in state and local spending. Consumer spending was revised down for the quarter. Look for a strong report on both consumer spending and income for January when the data are released tomorrow.

Initial unemployment claims dropped during the week ending February 20; the largest improvements occurred in two states: California and Ohio. The oil patch, which suffered widespread power outages, also saw a drop in claims but those improvements were more due to the power outages than an actual improvement in underlying economic conditions. Initial claims hit the lowest level since the week of Thanksgiving. When special pandemic assistance claims are included, unemployment claims remained above the one-million mark. That is still staggeringly high. Employment for February is expected to remain weak but we should see better numbers in the spring.

Bottom Line
The economy continues to heal, in fits and starts, from the pandemic. The good news is that the number of cases, hospitalizations and deaths have all plummeted in recent weeks. Vaccinations are also up. Now the challenge is to stay ahead of mutations to keep the economy open once we hit summer and fall. Hopes for reaching herd immunity and eradicating the virus have been supplanted by the reality that we will have to manage outbreaks for some time to come. Vaccines and rapid testing are expected to be leveraged to reduce the worst effects of the virus and contain outbreaks when they do occur.

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