Durable goods orders jumped 0.8% in November after the steep 4.3% drop seen the month before, according to today’s government report. Market consensus had called for a 1.% increase. However, increased defense spending masked a 0.3% drop in core durable orders which excludes military aircraft and is a less volatile metric.
Key Takeaways
- Demand for military aircraft led the increase in spending, much as it led the sharp drop seen in October.
- Orders for less-volatile core capital goods which excludes military aircraft fell in November by 0.6%, the second drop of the last three months.
- Orders excluding defense fell 0.1%.
Transportation orders mostly accounted for the gain in November spending. Not counting planes and cars, orders actually fell 0.3%. Transportation is a volatile element of measuring durable orders due to inconsistent demand month over month.
Commercial jet orders rose 6.7%, with a 31.5% increase in demand for military aircraft such as fighter jets while orders for cars fell 0.2%.Primary metals like steel saw increased demand with a decrease in demand for machinery and electrical equipment. Orders for computers saw no change for the month.
The general cool down in core orders suggests that investment in business equipment will not contribute significantly to Q4 GDP. While Q3 saw healthy 3.4% growth, economists believe that Q4 growth will cool to somewhere between 2.5% and 3%.
Factors such as the trade protectionism policies implemented earlier this year are likely impacting sales as many US trading partners have now imposed tariffs on US goods, and a general slowdown in global economic activity is also playing a role.
It’s also possible that falling oil prices will soon cause a decreased demand for pipes, machinery, and drilling equipment, although this has not been reflected in last month’s durable goods orders data.
Expert Outlook
CIBC Capital Markets senior economist Andrew Grantham said “The disappointment in November means that the 3-month annualized trend for core orders now sits at -0.2%, a substantial worsening compared with the 8% growth in Q3 and the 11% rise in Q2.
While the durable goods data suggest that business investment could become a drag on growth, we should get results from PCE spending later this morning that show a still-robust pace to consumer spending which will support Q4 GDP.”
Market Reaction
Gold ticked upward immediately following the report on durable goods orders which points to a cool down in some sectors, and then dipped once more, currently trading at $1,259.97/oz and down -0.29% on the day with a high of $1,266.29/oz and a low of $1,256.24/oz.
February gold futures are down -.0.30% and trading at $1,263.00/oz.
Gold Price Chart
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