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Durable goods orders rose 1.2% in December, but the surge came from a rise in demand for the volatile components of autos and airplanes, with weakness seen in other key manufacturing segments as well as business investment.

Key Takeaways

• Durable goods orders (for orders made to last at least three years) came in at 1.2% vs 1.4% expected.
• Minus cars and planes, durable goods orders rose a mere 0.1%. Cars and planes are often volatile and can lead to misleadingly strong, or, in this case, weak reports.
• The reported 0.7% increase for November was revised up to 1%.
• Business investment saw weak December activity.

Durable goods orders rose less than expected, and only rose 0.1% excluding the volatile components of cars and planes. Orders for commercial panes jumped 28% in December and orders for new cars and trucks rose 2.1% according to the latest report which was delayed due to the partial shutdown of the US government.

Orders for machines fell -0.4%, and orders for primary metals fell -1.3%. Electrical equipment saw a 0.1% drop in demand, and computers and related products saw a major -8.3% drop in demand. Communications equipment dropped -5%.

A key measure of business investment, known as core orders, also slipped 0.7% in December, although investment rose 6.1% annually. The drop in December was due to businesses concerned over a potential recession along with the uncertainty and turbulence created by the ongoing trade war between China and the US which has had a major impact on many industries due to heavy tariffs making goods more expensive and thus reducing demand for new orders.

Industry in 2018 slowed towards the end of the year, although the economy is still expanding overall in Q1 2019 with strong consumer spending and a tight labor market. Capital spending, on the other hand, is less healthy due to the international economic uncertainty observed in recent months causing businesses to exercise caution in investing.

Durable goods orders had been on an upward trend since August 2016, but recently have started to slow.

New durable goods orders rose 1.2% in December, buoyed by strength in autos and aircraft. Excluding transportation, sales inched up 0.1%. Nonetheless, the longer-term trend remains positive, with demand for durable goods up a modest 3.5% over the past 12 months. #mfg #economy pic.twitter.com/0N2XnMTcLw

— Chad Moutray (@chadmoutray) February 21, 2019

Expert Outlook

The US government commented on the delay in releasing the information, stating within the report that “data collection and processing were delayed for this indicator release due to the lapse in federal funding from December 22, 2018 through January 25, 2019. Processing and data quality were monitored throughout, and response and coverage rates were at or above normal levels for this release.”

Market Reaction

The gold market has entered a downward trend, posting losses from session highs of $1,345.28/oz and now trading down -0.65% near the session low of $1,332.72/oz at $1,334.51/oz. This follows the precious metal climbing near a 2.5 year high yesterday. The dip in price action may be due to mixed/strong labor market data which shows a dip in initial jobless claims, although other reports released today have indicated weakness in manufacturing and other industries today and the choppy market may continue to see volatility throughout the day.