Implications: A very solid headline gain for durable orders, but the underlying details of the report show more mixed Plow Horse growth. New orders for durables rose 3.7% in September. However, almost all the gains were in the transportation sector – particularly civilian aircraft – which is extremely volatile month to month. Orders were down 0.1% excluding transportation. Shipments of "core" capital goods, which exclude defense and aircraft, fell 0.2% in September and were down at a 2.9% annual rate in Q3 versus the Q2 average. Combined with gains in auto sales and the production of high-tech equipment, we now expect overall business investment in equipment was close to unchanged in Q3. That's a little worse than we previously estimated, but today's report also suggests more inventory accumulation than we previously assumed. As a result, when we plug these data into our models for GDP, we are still forecasting real GDP growth at a 2% annual rate in Q3. The best news in today's report was that unfilled orders for core capital goods rose 0.6% in September, 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 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. Expect more plow horse growth in the months ahead.
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