Durable Goods Orders: A Correlation with the S&P 500

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

New orders for manufactured durable goods in August decreased $0.2 billion or 0.1 percent to $201.8 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.1 percent July increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders decreased 0.1 percent.

Primary metals, down following five consecutive monthly increases, had the largest decrease, $0.2 billion or 0.8 percent to $24.2 billion.
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The new orders at 0.1 percent came in weaker than the Briefing.com consensus estimate of 0.1 percent. However the ex transportation number of -0.1 percent slightly exceeded the consensus forecast of -0.2 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.

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An overlay with unemployment also shows some correlation with unemployment (inverted). 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.

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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.

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

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

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

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The durable goods orders series is one of the more important indicators of the economy’s health. The latest report shows demand for durable goods on hold, at least temporarily.

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