February Durable Goods Orders

KEY DATA:  Durable Orders: -1.1%; Civilian Aircraft: +103.3%; Ex-Aircraft: -3.1%; Motor Vehicles: -8.7%; Private Investment: -0.8%

IN A NUTSHELL: “After nine consecutive solid gains, we shouldn’t be surprised to see a decline in orders for big-ticket items.”

WHAT IT MEANS:  A number of economic indicators bounce around, but demand for big-ticket goods tend to be extremely volatile.  That is why little should be read into the drop in durable goods orders in February.  Still, this was a very weak report as the only major category to show a significant sign of life was civilian aircraft.  Boeing is recovering and when their orders rise, it usually means the economies in the U.S. and the world are moving forward.  In this case, it has more to do with the 737 Max issue than fundamental economics.  If you remove the aircraft numbers, including defense, then there was a massive decline in orders.  Much of that came from the problems the vehicle sector is having with its supply chain – computer chips in particular.  This is slowing production.  The only other sector to post a rise, though it was nominal, was electric equipment and appliances.  Also, the proxy for private investment spending, nondefense, nonaircraft capital goods orders, also declined.  But it too had been up for nine months, so there is really not much to be concerned about, at least at this point.

IMPLICATIONS:Sometimes economic reports have to be simply looked at and put aside.  While today’s durable goods orders numbers were weak, one month does not make a trend.  That is true given the weather situation, though it is not clear why that would have played a major role in the decline.  The bad weather had a more direct impact on the housing sector and probably vehicle sales.  The simple reality is that the economy is in good shape and almost everything is moving in the right direction: The stimulus is hitting consumer bank accounts, vaccinations are ramping up and at least until recently, virus cases and especially deaths were trending downward.  Even with the beginnings of a resurgence in cases, governors seem committed to reopening regardless of the potential health consequences.  Thus, we should start seeing even greater job gains in those sectors that have been restricted in their operations.  And as the rate of vaccinations keeps accelerating, household, business and investor confidence should improve, possibly sharply.  We are not out of this yet, but there is a growing perception that the end is in sight and that can only lead to strong growth in the quarters to come.