Durable Goods Drop, Supporting a Sluggish Growth Projection for the New Year
by: Cliff Waldman, Chief Economist
The Commerce Department reported that total new orders for long-lasting (durable) goods fell by a sharp 4.6% in November, nearly a mirror of the 4.8% increase seen in October. The decline resulted from a 13.2% reduction in new orders in the normally volatile transportation equipment sector, which, in turn, was catalyzed by a 73.5% contraction in new orders for nondefense aircraft and parts. Excluding transportation, new orders rose by a modest 0.5% after sluggish to moderate gains in September and October.
The industry data in the November report paint the picture of a U.S. manufacturing sector that remains in a struggling slow-growth mode. Specifically, the data for new orders in the primary metals, fabricated metals, and machinery industries, all of which provide fundamental inputs to a wide swath of manufacturing supply chains, were mixed. In an improvement from recent months, new orders for primary metals increased by 2.3%, while fabricated metals new orders fell by nearly 1%. Orders for machinery saw a modest 1.3% gain after a small decline in October.
The November report was not overly encouraging for the moribund capital investment picture. There was only a modest 0.9% gain in new orders for nondefense capital goods, excluding aircraft, a well-accepted proxy for business equipment spending, after a shallow 0.2% gain in October and a contraction in September. Capital investment has been a significant weak point in the economic growth picture and these data do not hint at any measurable improvement.
The sluggish November durable goods report, in tandem with other data such as retail sales and industrial production, suggests that the economy slowed in November after a post-summer acceleration. While manufacturing growth will remain positive at least for the short term, factory sector performance will likely remain slow amidst a host of U.S. and global economic and policy uncertainties.