Durable Goods Orders

So. What are durable goods orders, and why does anyone care? Well, the durable goods orders report tracks the percent change in manufacturing orders for real, physical products. Positive results mean that new orders are increasing, which is an indication that the manufacturing sector is doing well, which is in turn an indication that GDP may be growing. And everyone likes to see GDP growth.

Now, for January, durable goods orders increased 2.7%. Most of this growth was driven by transportation and defense orders. Ex-transportation, durable goods were down 3.6% while ex-transportation, durable goods orders were only up 1.9%.

Looking at February, the Econoday-surveyed analysts are expecting some slowdown in new durable goods orders, with an increase of only 1.5%.

The US Census Bureau provides us with the actual results. New orders for manufactured durable goods fell 0.9% (substantially missing expectations). Ex-transportation, new orders decreased 0.6%. Ex-defense, new orders increased 0.4%.

Durable Goods Orders

Last month, the market was disappointed by a 2.5% decline in durable goods orders for December. Analysts had been looking for a 1.5% increase, so this was very much a letdown. But, last month's terrible shock notwithstanding, the Econoday-surveyed analysts are still optimistic. They are calling for 3.0% growth for January 2011.

And why are they looking for growth? Why do they care? Because this represents manufacturing orders for real, physical products. Positive results mean that the manufacturing sector is doing well, which can point the way towards positive GDP growth.

But, is the optimism justified? Or are the hopes and dreams of the markets about to be shattered by the cold, hard blow of stark reality? Turning to the US Census Bureau, we find that durable goods orders increased 2.7% in January. Interestingly enough, December's durable goods orders have also been revised upwards from a 2.5% decline to only a 0.4% decline. How that works, I don't know. I just report this.

Ex-transportation, January durable goods orders actually declined 3.6%, implying quite strongly that transportation orders drove quite a lot of the durable goods activity for the month. In addition, ex-defense durable goods orders were up only 1.9%. Obviously, a reasonable chunk of those transportation orders were military vehicles (whether ordered by the DoD or by foreign nations[1], we don't know from the report)..In fact, transportation equipment as a category was up 27.6% and the "defense aircraft and parts" component of that category was up 20.6%. The worst performance for a category came from machinery, which was down 13.0%, and the worst performance for a category component was communications equipment (down 14.4%).

[1] Yes, we do sell tanks and HMMWVs and fighter jets to other countries. Also, assault rifles, anti-armor and anti-aircraft missiles, ammunition, uniforms, and so on and so forth. The Taliban was a great customer of ours, back in the 80's.

Morning Metrics

We've got two important economic measures coming out today: the international trade balance (due at 8:30 AM) and consumer sentiment (due at 9:55 AM).

International trade is the bigger of the two measures, since it represents our trade surplus (unlikely) or deficit (probable). November had an unexpected improvement to a trade deficit of only $38.3 billion, but analysts are not particularly optimistic about December's possibilities. We're looking for a consensus estimate of a trade deficit that has expanded to $40.5 billion.

How did we do? Well, the US Census Bureau reports that the December trade deficit expanded to $40.6 billion, which technically misses expectations. But not by a lot, so the markets probably will not get bent out of shape about that. Drilling down, we learn that:

• The goods trade deficit was $53.5 billion, an increase of $2.2 billion from November.
• The services trade surplus was $13 billion, effectively unchanged from November.

The total goods and services trade deficit for 2010 came in at $497.8 billion, an increase of $122.9 billion from 2009. This included a $44.8 billion deficit in industrial supplies and materials, a $37.5 billion deficit in automotive vehicles, parts and engines, a $39.3 billion deficit in consumer goods, and a $3.7 billion surplus in foods and beverages. Yes, that's right. The only thing we're exporting more of than we're importing is food.

Our trade deficit with Canada increased $6.1 billion to $21.8 billion, our trade deficit with China increased $46.2 billion to $273.1 billion, and our trade deficit with the European Union increased $18.6 billion to $79.8 billion.

There is a glimmer of optimism for consumer sentiment, however. January saw the index rise to 74.2, and a further 80 bps increase to 75.0 is expected for February. But we'll check on that here in about half an hour.

Durable Goods Orders! Jobless Claims!

We've got two major sets of data points out now, so let's see if there will be more joy in the US than in Japan this morning.

First off, Durable Goods Orders. We're about to look at the December 2010 figures, and analysts are looking for substantial improvement. November saw a revised decline of 0.1% in orders, or a revised increase of 4.5% in ex-transportation orders. For December, the analysts are burning incense to Plutos Catachthonios and hoping for a 1.5% increase in new orders. And does the US Census Bureau disappoint us? Yes. Yes it does. Durable goods orders declined 2.5% for the month (ex-transportation, they were up a tepid 0.5%). The transportation sector was the biggest loser (new orders down 12.8%), with nondefense aircraft the biggest loser in the sector (down 99.5%[1]).

So, what about First Time Jobless Claims? Will that make the markets happy? We did really well last week - even after revising the figures, we had a better than expected seasonally adjusted 403,000 new claims. Unfortunately, there is no joy to be found in the news from the US Department of Labor, either. Seasonally adjusted, the week ending January 22 saw 454,000 initial jobless claims[2]. The seasonally adjusted insured unemployment level[3] is 3,991,000 (up 94,000) as of the week ending January 15, with the insured unemployment rate at 3.2%.

In domestic news, does anyone remember me talking about the Iraqi Dinar? Good. There is related news, with the US Commodity Futures Trading Commission using provisions in the Dodd-Frank Wall Street reform law and the 2008 Farm Bill[4] to file suit against 14 foreign exchange dealers. The suits allege that the firms named illegally solicited members of the public to engage in foreign currency transactions, and that they operated without being registered with the CFTC. The CFTC is looking for civil monetary policies, as well as trading and registration bans. DinarTrade is not one of the companies named.

[1] Not a typo.

[2] Interestingly enough, the unadjusted numbers came in at 482,399 for the week ending January 22. That's down from the week ending January 15, and also down from the 502,710 initial claims for the comparable week in 2010. Go figure.

[3] I haven't really discussed this figure before. The insured unemployment level is the number of persons who are currently receiving state unemployment insurance payments. It is not used in any way as a measure of actual unemployment, because not everyone who is unemployed receives unemployment insurance benefits.

[4] No, I'm not sure what farming has to do with it either.