February Durable Goods

Orders of wares expected to last three years or longer were mixed in February according to the Durable Goods report provided by the Census Bureau. The headline tally grew by 2.2 percent for the month, following a downtick of 1.3 percent to start off the year. The turnaround in the overall tally is encouraging, but there seems to be some hesitation by companies to invest in equipment as the core figure, which excludes defense and aircraft capital expenditures, dropped by 1.3 percent in February.

Orders grew by nearly $5 billion dollars during the period. Most of this surge came from the volatile transportation component; the $4.6 billion or 6.9 percent increase to $71.4 billion follows two consecutive months of decreases and was led by a $1.8 billion uptick in orders for nondefense aircrafts and parts. Motor vehicle and parts orders were up just over $1.6 billion for the month. Defense spending on aircraft and parts was also up in February.

Atlas considers core capital goods orders a proxy for business confidence. When firms anticipate a substantial increase in their business’ growth rate, they often spend money on new equipment. February’s weakness in the core figure could be suggesting that companies are not expecting growth to improve enough to require additional capital equipment.

Another clue into the economy found within this indicator is the shipment data. This demonstrates orders which have been completed that will go into the quarterly GDP tally. After falling by 0.6 percent in January, they were 0.9 percent higher in February. This portion of the report is not indicating that there was a strong economy in the first quarter of the 2014.

From the perspective of the Durable Goods report, the economy is continuing in a “more of the same” fashion. America’s output continues to grow but the rate of change is tepid. This will likely allow the central bank to keep short-term interest rates pinned to the floor for an extended period of time even after the unconventional policies expire. (by C. Cox)