Durable Goods Orders Slump

But don’t worry.

Let me repeat myself: this is both an important statistic and a very volatile one. It is important because the things being measured are big ticket items that cost a lot and form a basic part of investment by business as well as households. So rising orders for durable goods is usually a sign of greater confidence – people don’t mind making the investment – and healthy expectations for sales. They are volatile because one or two categories within the index can skew the entire thing. Defense and transportation – mainly airplanes – are so large that even a few orders can make the national data move erratically month to month. So this is an index that we look at over a few months to smooth it out, and also drop those bigger items to get a view of what’s going on in the rest of the economy.

With that out of the way, what happened?

Durable goods orders fell 5.2% in January, but, when we strip out transportation they rose 1.9%. There have been some large swings in orders of aircraft lately, and towards the end of last year there were some odd months for defense contracts too. Setting those aside the trend has been five solid months of growth. Unfortunately the sub-categories are all over the lot. Machinery orders jumped 13.5%, but autos and computers were weak. Finally, those orders that most closely track private sector business orders – known as core capital goods – rose 6.3%, the strongest increase for two years.

So, I think it’s safe to say that, despite the headline drop in orders, this aspect of the economy is chugging along just fine.

Not great, just fine.

And that’s good news.