Durable Goods Plummets for December 2014

The Durable Goods, advance report shows new orders declined by -3.4% for December 2014.  This month the decline was caused by volatile aircraft and parts.  Core capital goods also dropped by -0.6%.  For the last three of four months durable goods new orders as a whole have declined.  Without transportation new orders, which includes aircraft, the durable goods decline would have been -0.8%.  Without the Department of Defense's orders, the overall monthly decline would have been -3.2%.


Durable Goods


Below is a graph of all transportation equipment new orders, which plunged by -9.2% for the month.  This all due to volatile aircraft orders.  Motor vehicles & parts increased by 2.7%.   Aircraft and parts new orders from the non-defense sector decreased -55.5%.  Aircraft & parts from the defense sector decreased by -19.9%.   Aircraft orders are notoriously volatile, each order is worth millions if not billions, and as a result aircraft manufacturing can skew durable goods new orders on a monthly comparison basis.


durable goods transportation new orders SA


Core capital goods new orders decreased by -0.6%.  November's core capital goods new orders also decreased by -0.6%.  Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods.  Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on.  Capital goods are basically the investment types of products one needs to run a business. and often big ticket items.  A decline in new orders indicates businesses are not reinvesting in themselves.  This month machinery new orders declined by -3.7% and primary metals dropped -1.5%.



To put the monthly percentage change in perspective, below is the graph of core capital goods new orders, monthly percentage change going back to 2000.  Looks like noise right?  We use so many graphs to amplify trends for one month of data does not an economy make, yet so many declines over months does.  Even with the drop being caused by aircraft orders, this report is disquieting.



Shipments increased 1.1% after a -0.7% decline in November.  New orders are not necessarily shipped the next month an order is made.  Below is the monthly shipments; percent change for all durable goods shipments.


durable goods shipments


Shipments in core capital goods decreased -0.2%.  The below graph goes back to 1990 to show how core capital goods shipments tracks recessions, the gray bars in the graph.



Inventories, which also contributes to GDP, increased 0.5%, as did November's figure.


Durable Goods


Core Capital Goods inventories increased 0.3% for the month.   Graphed below are monthly core capital goods inventories annualized percentage change and pay close attention to the months of Q3, against the Q4 months.



Core shipments contributes to the investment component of GDP.   Producer's Durable Equipment (PDE) is part of the GDP investment metric, the I in GDP or nonresidential fixed investment.   It is not all, but part of the total investment categories for GDP, usually contributing about 50% to the total investment metric (except recently where inventories have been the dominant factor).   Producer's Durable Equipment (PDE) is about 75%, or 3/4th of the durable goods core capital goods shipments, in real dollars, used as an approximation.   Below is the national accounts description of PDE:

Nonresidential PDE consists of private business purchases on capital account of new machinery, equipment such as furniture, and vehicles (except for personal-use portions of equipment purchased for both business and personal use, which are included in PCE), dealers' margins on sales of used equipment, and net purchases of used equipment from government agencies, from persons, and from the rest of the world.

The below graph might give a feel for what kind of investment component we might see in Q4 GDP revisions, based on PDE.   Note the below is the annualized monthly percentage change of nominal values, not real, not adjusted for inflation, for core capital goods shipments.




Economists, the press and pundits are blaming the weather for economic declines.  The winter is unusual but only in certain areas of the country is it shutting down business as usual.  We believe it is having an impact, but is not the culprit for all bad news.  How much of an impact can just be estimated at this point, but industries concentrated in the Midwest have been especially affected.  Even though economic reports are seasonally adjusted, they cannot account for unusual weather that hasn't been this bad in over 50 years.

The report excludes semiconductor manufacturing and we must wonder if that means it is non-existent since so much has been offshore outsourced and thus corporations don't want the public to figure that fact out.

What is a durable good?   It's stuff manufactured that's supposed to last at least 3 years.   Here are our durable goods, related overviews, only some graphs revised.  The durable goods advance report is often revised when the full factory orders statistics are released.

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it's not weather's fault

according to the December industrial production report of a few weeks ago, we had warmer than normal December, which reduced utility production by a seasonally adjusted 7.3%...if anything, December's weather should have been a positive for durable orders..

everyone was surprised to see new orders and order backlogs both down even without aircraft; mostly on lower machinery and capital goods orders…what you’re seeing here is the effect of the pullback in the oil patch; none of the oil companies are ordering any new equipment…that it surprised the experts shows how little they actually pay attention to what’s going on in the economy…


exports, maybe

I'm thinking there is a global slowdown and export orders are down. Without QE, there is a huge investment reduction in "emerging economies". Nothing in the manufacturing survey for this large of a drop but exports did go closer to the 50% mark, see here.

prices, too

prices for a lot of durable goods have been down, too...computers, appliances, fabricated metals, machinery...just looked at the "surprise" 3.4% hit to factory orders...energy products was a big part of that no one accounted for...