Implications: Ignore the headline decline in durable goods orders; the report was very good news for the US economy. All of the overall drop in orders was due to the transportation sector, particularly civilian aircraft, which is extremely volatile from month to month. Outside the transportation sector, every single major category of orders increased in November, with the largest gain in computers and electronics, rebounding from a steep decline last month. Meanwhile, shipments of "core" capital goods (which exclude civilian aircraft and defense) also bounced back in November, rising 1.0% in November after a 1.2% decline in October. These shipments are up 10.4% versus a year ago but the pace of the gains has slowed of late, rising at only a 3.1% annual rate in the past three months. However, we think these shipments are poised to reaccelerate. Unfilled orders for these goods (which can turn into future shipments) have increased seven months in a row. Cash on the balance sheets of non-financial companies is at a record high and corporate profits are near a record high. In this environment, business investment is heading up.
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