New Orders for Durable Goods rose by 0.5% in total in February, on top of gains of 3.9% in January and 1.8% in February. The January number was revised sharply higher from the previously reported 3.0%.
While that appears to be a serious slowdown from the January pace, the January strength was all in the extremely volatile transportation equipment area. A few orders for 787s from Boeing (BA) or for F-22’s from Lockheed Martin (LMT) can swamp the information coming from many smaller-ticket items.
It’s not that jet liner orders are not important, but that they tend to be very lumpy. Excluding transportation, durable goods orders rose by 0.9% in February, more than reversing the 0.6% decline in January. In December orders excluding transportation were up 1.9%. The January number excluding transportation was also revised upwards from the originally reported decline of 1.0%.
The other area that it is interesting to look at separately is to exclude defense orders to get a better sense of private sector demand. There the data is much more stable and looks pretty solid. In January, new orders excluding defense were up 1.6% on top of back to back increases of 1.7% in January and February.
New orders for transportation equipment fell by 0.7%, after jumping by 19.4% in January and rising by 1.6% in December. Orders for motor vehicles fell for the second straight month, down 1.9% after a 2.3% decline in January, but December showed a 5.7% increase.
Civilian aircraft had another solid month with a 32.7% rise on top of the huge 134.9% increase in January. But that came on top of a 28.4% fall in December. The rebound in civilian aircraft orders is good news not just for the prime contractors, but for the suppliers such as Honeywell (HON) and United Technologies (UTX) as well.
However, given that sort of volatility, you can see why one would want to look at the data both including and excluding that segment. The good news on the civilian aircraft side was offset by a 19.0% decline in defense aircraft orders. Lest anyone think that we are heading towards a situation where we have no Air Force, don’t worry — in January those orders were up 17.3% and in December they were up 22.4%. It’s just inherently very lumpy data.
The rise in civilian aircraft orders was behind a 5.2% increase in non-defense capital goods, on top of increases of 8.3% in January and 2.0% in December. This indicates that business spending is starting to come back. Even if one excludes aircraft, to what is sometimes referred to as core capital goods, orders rose 1.1%. That did not make up for the 3.9% decline in January, but it, in turn, was after a 3.0% rise in December. In other words, core business investment spending is up only slightly over the last three months.
Overall, this was a fairly solid report, especially if one factors in the revisions to January’s data. Nothing earth-shaking, but something you can put into the plus column on the economy.
Read the full analyst report on “BA”
Read the full analyst report on “LMT”
Read the full analyst report on “HON”
Read the full analyst report on “UTX”
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