"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Wednesday, May 25, 2011

Durable Goods Orders

With the mortgage applications out of the way, it's time to move on to an economic index the market cares about.  Durable Goods Orders.
According to Barron's Dictionary of Finance and Investment Terms,  durable goods are "goods that have a useful life of more than three years.  Orders for durable goods, which are tracked by the Commerce Department on a monthly basis, indicate the extent to which businesses and manufacturers are willing to invest capital for future needs.  Several months of increases in durable goods orders are a sign of a strong economy, and vice versa.  The term hard goods is sometimes used synonymously, but more properly refers to durable consumer goods, such as appliances, as opposed to soft goods, which are consumer nondurables, such as textiles.  The official economic opposite of durable goods is nondurable goods, which includes food, fuel, cosmetics, drugs, clothing, and services."
So yeah, the market loves this index.  Loves it to pieces.
And it really loved March's results.  We had an expectations-beating month, with new orders for manufactured durable goods up 2.5%.  That was driven heavily by transportation equipment orders as, ex-transportation, the index was only up 1.3%.  But, I fear, the Econoday-surveyed analysts are not so optimistic about April.  They are expecting durable goods orders to decline 3.0%.
But the proof is in the pudding, and in this case the pudding is the US Department of Commerce's Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders April 2011.  And the report makes sad broker very sad.
New orders for manufactured durable goods in April declined an expectations-missing 3.6%, still driven by transportation.  Ex-transportation, new orders fell only 1.5%.  Transportation equipment orders fell 9.5% (with nondefense aircraft and parts orders leading the way with a whopping 30% decline).  The only winner was computers and electronic products, which saw a 0.7% increase in new orders.
And that is sort of a sad win.
The takeaway?  Manufacturing did poorly in April, and aircraft did the worst.  Barring some dramatic news from elsewhere, watch for a down day[1].
[1]  Of course, given my overall success in attempting to predict market activity from this data, we could be up 300 points.  Please do not assume I know what I'm talking about.

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