Implications: New orders for durable goods rose 3.3% in September, the largest gain since January. Back in August, orders outside the transportation sector were strong, but transportation orders fell steeply. This month's report was the opposite, with ex-transportation orders falling, but transportation orders soaring upward. In this situation, combining the two months is a good way to figure out the underlying trend, and that indicates the trend is up. Overall orders are up 2.3% in the past two months while ex-transportation orders are up 1.1%. Meanwhile, shipments of "core" capital goods (which exclude civilian aircraft and defense) increased 0.4% in September – the eighth consecutive monthly gain – and are up 12.7% versus last year. Business investment in equipment must increase substantially over the next couple of years. Capacity utilization has increased rapidly in the past year (even with what many consider weak activity) and the industrial sector could easily reach 80% utilization (the long-term average) by the end of 2011. With record cash on balance sheets, businesses have the incentive and ability to buy more equipment. In other recent news, the Richmond Fed index, a measure of manufacturing in the mid-Atlantic, increased to +5 in October from -2 in September. The sub-component with the largest increase was new order volume, while both shipments and the number of employees also returned to positive territory.
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Posted on Wednesday, October 27, 2010 @ 10:28 AM
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