New orders for Durable Goods fell 2.4% in August, well below expectations of a 0.4% increase. In July, Durable Goods orders were up 4.8%.
If the extremely volatile transportation equipment segment is excluded, however, orders were unchanged. Transportation equipment includes jetliner orders from Boeing (BA), and a few planes ordered or not ordered can really move the needle from month to month.
That, too, was below expectations of a 1.0% rise and below the July increase of 0.9%. Total new orders were $164.4 billion in August.
Durable Goods inventories continue to fall — now down 1.3% on the month to $308.9 billion, following a 1.1% decline in July and marking the eight straight month they have fallen.
This was a very weak report, and it’s troubling since Durable Goods are traditionally one of the engines to lead an economy out of recession.
The numbers on a year-over-year basis are still rather dismal. Total new orders are 24.9% below a year ago, while excluding transportation they are down 22.2% (given the extreme fluctuations in transportation orders from month to month, it is interesting to see just how close the two are on a year-over-year basis).
If Defense orders are excluded, we were down 2.4% on the month following a 4.2% increase in July and are off 26.6% year over year. Non-Defense aircraft orders (i.e. jetliners) plunged 42.2% on the month, after being up 98.2% in July, which in turn had fallen 30.5% — as I said, it is a very volatile area. On a year-over-year basis, those orders are off 63.1%.
New orders for Non-Defense capital goods, which is a good proxy for business investment, fell 7.1% in August — reversing a 7.0% increase in July. On a year-over-year basis those orders are down 30.1%. On the other hand, if aircraft are excluded, orders fell only 0.4% following a 1.3% decline in July, and are off 22.7% for the year.
One area that has been showing some signs of weakness is new orders for computers, which fell 2.5% on the month following a 3.7% decline in July. However, on a year-over-year basis, they have held up relatively well, down only 16.3%.
The recent downturn should give investors in the Tech sector some pause. So far this year it has been pretty strong, and has recently been well supported by earnings estimate increases, particularly in the past few months. However, if orders for computers are falling, analysts might just have to rethink just how much those companies can earn. Companies like Hewlett-Packard (HPQ) and Dell (DELL) might be vulnerable to a pullback as a result.
While it seems that the economy has some momentum in the third quarter, these weak new orders for Durable Goods do cast some doubt about if that momentum will be sustained in the fourth quarter and into 2010. It’s just one data point, but a very disappointing one.
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