For Immediate Release
Chicago, IL – September 27, 2010 – Zacks.com Analyst Blog features:Boeing (BA), Textron (TXT), Dell (DELL), International Business Machines (IBM) and Western Digital (WDC).
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Here are highlights from Friday’s Analyst Blog:
Aircraft Crash Durable Goods Orders
New Orders for Durable Goods fell 1.3% in July. That was slightly better than the consensus expectations for a decline of 1.4%.
The news is better than the headline number suggests. All of the weakness came from the extremely volatile transportation equipment side, and more specifically, from the non-defense aircraft component. That is mostly orders for big 777’s and 747’s from Boeing (BA), which are very expensive items. It also includes orders for business jets from firms like Textron (TXT). A few orders for new jumbo jets can really skew the numbers for the month.
Excluding transportation equipment, new orders rose 2.0%, well above expectations for a 0.6% increase. Overall transportation equipment orders were down 10.3%, and more specifically, non-defense aircraft orders plunged 40.2%.
If one want to gauge how much demand for long lasting goods is coming from the private sector, then one needs to strip out orders from the Pentagon. Excluding defense, orders for capital goods were down 1.3% in July reversing a 0.7% decrease in July.
Last month’s numbers were revised sharply higher. Total new orders had been thought to have risen by 0.3% in June, but that was revised to a rise of 0.7%. Orders ex-transportation equipment were actually down 2.8% in June rather than down 3.8%, as had been previously reported.
Longer-Term View
Even if one strips out the most volatile sectors, like transportation equipment, durable goods orders can move around a lot from month to month. It is worth taking a step back and look at the longer-term picture.
If you look at total new orders so far in 2010 relative to the total new orders in the first seven months of 2009, things still look pretty good. Total new orders year-to-date are running 15.2% higher than last year, and if transportation equipment is stripped out, orders are up 14.7%. Excluding defense, year-to-date orders are up 16.0%.
In other words, we had a very robust recovery in orders early in the year, but that momentum is fading. It is important to keep in mind just how weak the economy was in the first eight months of 2009. The year-to-date gains say as much about the conditions last year as they do about current conditions. It would be a big mistake to think that the year-to-date numbers represented some sort of normal growth rate.
Core Capital Goods
One of the areas that this is most apparent in is in what is known as “core capital goods.” Those are orders for non-defense capital goods, excluding aircraft. That is a very good proxy for what businesses are investing in equipment and software.
That investment is a direct input into the GDP growth calculations, and one of the real bright spots for the economy in the first half of the year. That is the sort of spending that is a bet on the economic future of the country, and is also one of the areas that trends to swing with overall economic conditions. Those swings are a big factor in determining if the economy is growing or shrinking.
On that front, the news in August was a turn for the better from a dismal July, as core capital goods orders rose by 4.1%, versus a decline of 5.3% in July (although that was revised up from a decline of 8.0%), and even better than the 3.6% growth in June. Year to date looks pretty good, with orders running 17.0% above last year’s pace.
Areas of Notable Rebounds
Some of the areas that had the biggest declines last month rebounded nicely in August. Orders for computers and related equipment rose by 12.0%, more than reversing a 6.4% slide in July. Year to date, orders are up 17.9%.
That has a boat-load of positive implications for the Tech sector. Most directly it would be a positive for the computer makers like Dell (DELL) and International Business Machines (IBM), but there is a lot of “pin action” there in component firms such as the chipmakers and disk drive firms such as Western Digital (WDC).
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