What a stinker this morning’s report on durable goods orders was!
The Census Bureau’s new advance look at demand for these products in September showed a 1.7 percent monthly decline in orders for capital equipment outside the defense sector and excluding the big (but highly volatile) aircraft industry. That was the second month-to-month drop in this widely followed gauge of business investment in the last three months. As a result, “core capex” (capital spending) is now up five percent year-on-year.
Interestingly, the month-to-month figures are presented in the press releases on a seasonally adjusted basis, but the year-on-year figures are not seasonally adjusted. To add to this mystery, you can get the seasonally adjusted year-on-year numbers from the Bureau’s interactive data base, but it’s one-month behind.
Looking at these seasonally adjusted year-on-year data from April on (to factor out the weather-depressed activity from winter and the equally distorted early spring catchup) shows that it’s up from 4.02 percent to a whopping 7.31 percent – which sounds great. But if you look at the 2013 data, you see that last year was a weak one for this business spending, so the annual comparisons are bound to look impressive. Barring a huge upward revision in the final Census report for September (due out November 4), the latest year-on-year growth won’t be nearly as good.
Drilling down into the details (and these figures include aircraft and defense spending), the new report reveals that new orders strengthened from August to September in four of seven major industry groups tracked (meaning either that they moved from contraction to growth, their growth sped up, or their contraction slowed down). These sectors were primary metals, fabricated metal products, transportation equipment, and miscellaneous durable goods). New orders weakened in machinery, computers and electronics products, and electrical equipment, appliances, and components.
New orders actually fell month-to-month in three of these seven sectors: machinery, computer and electronics products, and transportation equipment.
Also of note: New orders in the (heretofore) scorching hot automotive sector fell on month in September for the second straight month. Year on year, such spending is up only 4.7 percent – less than in an overall manufacturing sector its growth has been leading.
But because little is straightforward in American manufacturing data, at least in the short term, just after this lousy durable goods report came out, the Richmond, Va. branch of the Federal Reserve told us that manufacturing activity in its district continued on its recent tear. The October headline figure – which measures overall manufacturing activity – surged to 20 from 14 in September. All the key internals, like new orders and employment, looked strong, too.
Keep in mind, though, that like all of the monthly regional Fed manufacturing surveys, this Richmond report is vulnerable to “survivorship bias.” It measures how the region’s existing manufacturers say they’re faring, regardless of whether their numbers have grown or shrunk over any given time frame. And the same goes for the upcoming purchasing managers’ indexes from the Institute for Supply Management and Markit.