U.S. durable goods orders drops in October

U.S. durable goods orders in October moderated further, accompanied by downward revisions to September estimates. The headline figure dropped 4.4 percent sequentially in October, as compared with consensus expectations of 2.6 percent. Nevertheless, the subdued headline reading overstates the easing in underlying activity, as falls were mainly driven by fall in the volatile transportation category.

Stripping transportation, new orders rose 0.1 percent sequentially in October, a little softer than consensus expectations of 0.4 percent on the heels of a downwardly revised in September. The September ex-transportation orders estimate had been unchanged in the previous print. With these latest estimates and revisions, the underlying trend in the ex-transportation category indicates clear signs of slowdown if not outright falls, with new orders down 0.9 percent, compared with rises of 2.7 percent.

Monthly patterns in the capital goods categories were also on the weak side, which will probably disappoint supply-side proponents who though that capital deepening induced by the tax reform would sustain permanently stronger economy growth. Headline capital goods orders dropped 6 percent sequentially in October after a similar 5.4 percent fall in September.

Stripping the nondefense aircraft orders and falls in the defence category, core capital goods orders came in flat in October after a downwardly revised fall of 0.5 percent on sequential basis, in September. October’s estimate for core capital goods orders was slightly below consensus expectations. Smoothing through the monthly volatility, the estimates again give clear evidence that  the underlying trend of core capital goods orders is easing, with new orders down 2.9 percent three month saar in October compared with a rise of 12.5 percent 3m saar as recently as July, noted Barclays in a research report.

Shipments of nondefense capital goods excluding aircraft – which factor directly into the NIPA estimates of equipment investment – were only slightly more encouraging than the order estimates, moving up 0.3 percent sequentially in September on the heels of small falls in both August and September. On a three-month percent change basis, core capital goods shipments rose just 0.2 percent 3m saar, compared with a 9.6 percent 3m saar rose in July.

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