– October 24, 2019
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New orders for durable goods decreased 1.1 percent in September, led by a 2.7 percent fall in transportation equipment. Over the past year, orders are down 5.4 percent to $248.2 billion, about 5 percent below the recent high of $262.2 billion in September 2018 but more than 70 percent above the March 2009 recession low (see chart). Excluding the volatile aircraft category, orders were off 0.9 percent for the month and 0.9 percent below September 2018, essentially a flat trend over the past year (see chart again). The flat trend in new orders for durable-goods excluding aircraft suggests slow growth for the equipment investment segment of gross domestic product.

Within the report on new orders for durable goods are data on new orders for capital goods, or business investment. This subcategory is particularly important for two reasons. First, business investment can have a major impact on future productivity trends, and productivity is critical for helping offset cost increases as well as raising living standards over the long term. Second, capital-goods orders tend to be early indicators of turns in the business cycle. Real new orders for core capital goods — that is, real nondefense capital goods excluding aircraft — is one of the indicators in AIER’s Leading Indicators index.

On a nominal basis, new orders for core capital goods fell 0.5 percent in September to $68.6 billion. In a manner similar to the broader durable-goods excluding aircraft category, core capital-goods orders appear to be plateauing near the $70 billion level, the peak of the two prior business cycles (see chart).

The results for the categories of durable goods shown in the report were mixed in the latest month. Among the industries showing decreases, nondefense aircraft orders fell 11.8 percent while motor vehicles were down 1.6 percent. Those declines were partially offset by defense aircraft which rose 6.3 percent for the month. Combined, all transportation equipment orders were off 2.7 percent for the month. Fabricated metal products declined 1.5 percent while computers and electronics products were down 0.9 percent.

Categories showing gains for September are primary metals orders, up 0.3 percent after a 2.1 percent gain in August, electrical equipment and appliances orders, up 0.9 percent in September after a 1.8 percent drop in August, and machinery orders, gaining 0.2 percent. The catchall “other durables” category was unchanged for September after a 0.2 percent rise in August.

Concerns over trade policy, ongoing trade wars, and weak global economic growth may be starting to impact investment plans. However, the labor market, consumer sentiment, household balance sheets, personal income, and corporate sales and earnings are generally healthy. While uncertainty regarding the outlook is significant, the outlook is for continued slow growth.

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Robert Hughes

listpg_hughes Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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