Implications: An early Christmas present came in the shape of the November durable goods report today. New orders surged by 3.5%. Much of the gain was in the transportation sector – particularly civilian aircraft – which is extremely volatile month to month. Excluding transportation, orders were still up a very healthy 1.2%, led by a 3.8% surge in industrial machinery. Shipments of "core" capital goods, which exclude defense and aircraft, rose 2.8% in November and, if this measure is unchanged in December, will be up at a 7.5% annual rate in Q4 over Q3. Plugging these figures into our models for real GDP lifts our forecast for Q4 to a 2.3% annual rate. Both consumer spending and business investment appear to be rising at the fastest pace all year. If accurate, real GDP will be up 2.5% in 2013 (on a Q4/Q4 basis), the best since 2010. We expect faster growth of around 3% in 2014. Other great news in today's report was that unfilled orders for core capital goods rose 1% in November, hitting a new record high. The news on unfilled orders supports our optimism about business investment. Monetary policy is loose and, for Corporate America, borrowing costs are still relatively low and balance sheet cash and profits are at or near record highs. Meanwhile, the obsolescence cycle should get more firms to update their capital stock. In addition, the recovery in home building should generate more demand for big-ticket consumer items, such as appliances. The Plow horse looks set to trot in 2014. Merry Christmas!
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