KEY DATA: Orders: +0.2%; Ex-Aircraft: +0.7%; Capital Spending: +0.6%; 2019-2020: -7%; Ex-Transportation: -0.1%; Capital Spending: +1.8%
IN A NUTSHELL: “Businesses continue to buy big-ticket items, a sign that the economy is in decent shape.”
WHAT IT MEANS: Purchases of durable goods rose somewhat disappointingly in December, but once again, the headline number does not tell the true story. If you take out the nondefense aircraft sector, demand actually rose solidly. Boeing is starting to turn the corner and there was a surprising drop in total orders despite it receiving a large order early in the month. Order terminations look like they are slowing down now that the 737Max is flying again. Don’t be surprised if we see big increases in total orders in the months to come as Boeing starts the long road to recovery. Looking at the details, demand for machinery, vehicles, metals, communications equipment and electrical equipment improved. Computer orders, which had surged, eased back. That was not a surprise. The proxy for business investment activity, capital goods orders excluding defense and aircraft, increased strongly. For all of 2020, there was a sharp drop in durable goods purchases. But just about all of it was in transportation as both vehicle and nondefense aircraft demand plummeted. In other words, if you exclude transportation, large item demand was up modestly. Given all we went through, that is pretty good.
IMPLICATIONS: While the headline may have been a disappointment, durable goods demand remains decent. Given the robust rebound in the summer, it should surprise no one that growth is tailing off. Tomorrow we get the first look at fourth quarter GDP and the consensus is around 4.2%. That is really solid. But there are still issues facing the economy and most forecasts are for growth to taper off as we move through the year. The wild card, of course, is the size of any additional stimulus. The Biden plan would cause the economy to surge, though it creates even more debt. A scaled down bill, which I expect to see passed in the spring, would keep activity going for the year at a moderate pace.
The FOMC is finishing off its meeting and later today we will get the statement and hear from Chair Powell. I expect nothing but good news: The economy continues to grow, rates will be kept low for the rest of our lifetimes (just kidding), the Fed will continue to pump money into the financial economy at a significant pace and additional fiscal stimulus will help out. What more could investors want?