Implications: New orders for durable goods fell an ugly 4.2% in March, the most in three years, showing broad losses across many categories. A 48% drop in civilian aircraft orders led the way, which was expected. However, despite the decline in March, the underlying trend remains favorable, with overall orders up 2.7% in the past year and 5% excluding transportation. Don't forget that orders are extremely volatile from month-to-month and the data we are seeing now reflect the very early stages of a home building recovery. As housing picks up steam, orders for durables should pick up as well. As a result, we expect gains in the year ahead. The details of the report were not as bad as the headline. Shipments of "core" capital goods were up 2.6% in March, hitting a new record high, and are up 7.2% from a year ago. Meanwhile, orders for core capital goods continue to outpace shipments, as they have for the past two years, meaning business investment will keep moving upward. Unfilled orders for core capital goods are at a new all-time record high and up 9.7% from a year ago. Monetary policy is loose, interest rates are extremely low, and businesses are reaping record profits while they already have record amounts of cash on their balance sheets. Moreover, capacity utilization at US factories is approaching its long-term norm, meaning companies have an increasing incentive to update their equipment. In other words, the large decline in new orders for March does not change our forecast for a continued recovery.
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Posted on Wednesday, April 25, 2012 @ 11:57 AM
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