Durable Goods Orders: A Ray of Sunshine or Dead Cat Bounce?

The October Advance Report on September Durable Goods was released this morning by the Census Bureau. Here is the summary on new orders:

New orders for manufactured durable goods in September decreased $1.5 billion or 0.8 percent to $200.3 billion, the U.S. Census Bureau announced today. This decrease, down three of the last four months, followed a 0.1 percent August decrease. Excluding transportation, new orders increased 1.7 percent. Excluding defense, new orders decreased 1.1 percent.

Transportation equipment, down following two consecutive monthly increases, had the largest decrease, $4.0 billion or 7.5 percent to $49.6 billion.
Download full PDF

The new orders at -0.8 percent came in slightly better than the Briefing.com consensus estimate of -1.0 percent. The ex transportation number of 1.7 percent more substantially beat the consensus forecast of 0.4 percent.

The first chart is an overlay of durable goods new orders and the S&P 500 (NYSE:SPY). We see an obvious correlation between the two. However, at this point, the correction in the market has not been accompanied by a contraction in goods orders in the latest report.

An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession. We’ll want to keep an eye on this correlation in the months ahead.

An overlay with GDP shows some disconnect in recent quarters between the recovery in new orders and the general decline in GDP — yet another comparison we’ll want to watch closely.

The next chart shows the percent change in orders with and without transportation (NYSE:IYT) (namely vehicle orders) since the turn of the century.

Now let’s exclude defense orders (NYSE:PPA).

And finally, let’s look at core durable goods orders, excluding both Transportation (NYSE:IYT) and Defense (NYSE:PPA).

The durable goods orders series is one of the more important indicators of the economy’s health. Aside from the weakness in transportation orders, the latest report shows a continued expansion in demand for durable goods since the end of the last recession.

Doug Short Ph.d is the author of dshort.com.

More from The Cheat Sheet