Durable Goods Report – Orders Driven Down By Defense & Aircrafts
The October durable goods report was weak. This signals hard economic data is supportive of the recent correction in stocks. The headline matches the takeaway from this report. But the underlying results need to be examined. That one time crash in defense orders isn’t relevant in measuring the momentum of the economy.
New orders were down 4.4% month over month which missed estimates for a 2.5% decline. That’s pretty bad considering that the September reading was revised from showing 0.8% growth to a 0.1% contraction.
Excluding transportation, month over month orders were up 0.1% which missed estimates for 0.4% growth.
Again, this looks even worse because the September results were revised down from 0.1% growth to -0.6% growth. There should be stronger results than expected when the prior reading is revised down, if you’re looking at the data sequentially.
Instead, these misses signal there is a negative trend which is bad for Q4 GDP growth estimates. This report pushed the NY Fed’s Q4 GDP growth estimate down 4 basis points.
The latest estimate is 2.51% which would be a huge drop from Q3’s growth rate of 3.5%. Q3 GDP report will be updated on Wednesday. Consensus expects GDP growth to stay at 3.5%.
Headline durable goods report was weak because of the 59% decline in defense aircraft orders. This metric has been wild as it more than doubled in September. In the long run, it has been increasing.
It should do well under President Trump’s leadership. He wants to increase the defense budget. Civilian aircrafts have been sharply declining. They were down 21% and 19% in the past two reports.
Durable Goods Report – Core Orders & Shipments Signal A Slowdown Is Here
Core capital goods orders are what I follow to see the underlying trend in economic growth. Core capital goods orders were flat month over month. They missed the consensus for 0.3% growth. That’s a big miss since the September report was revised from a 0.1% contraction to a 0.5% decline.