January Durable Goods Orders

Orders for goods lasting longer than 3 years dropped significantly in January according to the Census Bureau.  Durable Goods Orders (DGO) fell 4 percent after rising in the final three months of 2011.  Part of the blame for January’s drop can be attributed to the end of last year’s 100 percent bonus depreciation for businesses investing in capital goods.  As the end of the year drew near, businesses wanting to take advantage of the temporary provision in the tax code moved purchases forward to meet the deadline.  This left a vacuum in the first month of 2012, and only time will tell how quickly it is filled.

For now the country is stuck with figures like those seen in categories such as computers and machinery.  They were lower by 10.1 percent and 10.4 respectively.  Primary metal orders fell 6.7 percent.  In an attempt to strip out some of the noise in the data, it is helpful to consider the line many call “core capital expenditures.” This looks at business investment excluding spending on defense and aircraft; many use it as a guide to gauge business confidence.  Falling 4.5 percent, this measure was slightly worse than the headline.

Atlas tries to take the indicators as they are, but January’s DGO was likely impacted by an outside influence.  It is difficult to estimate how much of the lower reading is caused by the expiration of an incentive. At the same time, one cannot ignore the fact that the largest economic region, the Eurozone, is having a difficult time, so some of the slowdown in orders may also be due to fewer foreign buyers.  If this proves to be part of the problem, it will impact the GDP here in the U.S. as net exports figure into the estimation of domestic output.    (by C. Cox)