Implications: An ugly report on durable goods from February. Orders fell 1.4%, much weaker than the expected 0.2% increase. However, this is not the end of the economic expansion. Three special factors have held orders back – less drilling activity, West Coast port strikes, and abnormally cold winter weather. Most of the decline was in the transportation sector – particularly aircraft – which is extremely volatile month to month. Still, orders excluding transportation declined 0.4% and have now dropped for five consecutive months. This is no different than what happened in 2012, when orders also fell for five consecutive months, yet real GDP accelerated in 2012 from 2011. Despite recent declines, orders ex-transportation still remain up a Plow Horse 2.3% from a year ago. "Core" shipments, which exclude defense and aircraft, rose 0.2% in February and are up 4.6% from a year ago. Still, if unchanged in March, "core" shipments will be down at a 0.9% annual rate. Plugging these data into our models for overall real GDP puts our forecast for Q1 at a 1.0% annual rate. Moving forward, we expect to see a rebound in orders and shipments as temporary headwinds recede. Consumer purchasing power is growing with more jobs and higher incomes, while debt ratios remain very low, leaving room for an upswing in big-ticket spending. Meanwhile, profit margins are high, corporate balance sheets are loaded with cash, and capacity utilization is breaching long-term norms, leaving more room (and need) for business investment.
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Posted on Wednesday, March 25, 2015 @ 10:57 AM
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