New orders for durable goods, one of the most volatile series to come out monthly from the government, lived up to its unenviable reputation this morning, as this metric fell by 4.3% in December. Expectations had been for an increase of 1.6%. In November, this series had shown a gain of 2.6%. Initially, the November rise had been estimated at 3.4%. So, we are all over the map here.
In all, the drop last month was the largest since mid-summer, and was brought about principally by weakness in orders for autos and aircraft. The high ticket nature of these offerings contributes mightily to the historical volatility in this index.
Durable goods, meanwhile, are large-ticket items that are expected to last three years, or more. In this category are automobiles, aircraft, television sets, dishwashers, stoves, and other household appliances.
The disappointing result could cause some economists to reduce their forecast for fourth-quarter GDP. Many now hold that this report, to be issued on Thursday morning at 8:30 (EST), will show growth of 3.3%; some outlier projections, in fact, call for a GDP gain of some 4%.
Breaking the durable goods report down, we find that orders nondefense capital goods fell 5.0% in December, to $82.5 billion. Moreover, defense orders for capital goods plummeted 21.5%. Much of the latter, no doubt, reflected weakness in aircraft orders. Other areas showing softness last month included orders for primary metals, fabricated metals, computers and electronic products, and transportation equipment. Among the few sectors to show any strength at all were electrical equipment, appliances, and machinery. But that was it; otherwise, this was a weak report across the board.
Although this was a disquieting series result, we are not yet ready to suggest that a changing aggregate economic trend is in place. Most of the data look reasonable as we start the new year, but there also are some pockets of weakness, a part of which may well be weather related, such as yesterday's less-than-compelling report on new home sales. Thus, we caution that upcoming issuances should be scrutinized to see if, as the pessimists now believe, that a shift in business expectations may be at hand.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.