GoldPrice.

Durable goods orders rose by 0.4% in January vs -0.4% decline expected according to a Commerce Department report released on Wednesday which was delayed by the government shutdown. US factories saw increased demand for manufactured goods – however, the increase was largely due to the volatile aircraft category.

Key Takeaways

• Durable goods orders in January rose by 0.4%, led mostly by increased demand for aircraft.
• A key measure of business investment saw the biggest gain in six months after recent declines.
• Investment was expected to pick up earlier following tax incentives designed to stimulate activity.
• Removing the transportation component, orders dropped by -0.1% overall.

The 0.4% rise in durable goods orders was led by a 15.9% increase in orders for commercial aircraft, a component of the overall index which is notoriously volatile. Removing transportation, the so-called core-durable goods orders dropped -0.1% in January, vs a 0.1% gain expected. Core-durable goods orders have now missed expectations for 7 months in a row.

The category used to measure business investment saw a 0.8% increase, the most since a 1.5% increase in July.

The bump follows two straight months of decline which have come as a surprise to those who expected major tax breaks to foster strong activity in business investment recent months.

Factory Orders and Trade War

Orders rose for commercial aircraft, machinery, transportation equipment, and networking gear. Orders fell by 1% for autos and parts, and also dropped for industrial metal and computers.

Industrial metal is a prime area affected by the tariffs implemented as a result of the ongoing trade war between the US and China which, as of yet, has no resolution in sight and may result in more tariffs being implemented this year.

Core orders, the indicator used to measure business investment, rose by 0.8%, the strongest bump since July, following reduced activity in investment. This, too, was a result of the trade war’s impact on supply chains and business planning, as well as increases in interest rates.

The alleviation of interest rate pressures may be behind the recent boost to investment. The yearly rate of investment rose by 3.1% in January, still a far sight from its recent height of nearly 10%.

The 1.2% increase in durable-goods orders in December was revised upward to 1.3%.  Overall, manufacturing and industry has been slow in late 2018 and 2019, with other factors including the general global economic slowdown and a stronger dollar placing pressure on export.

US durable goods #orders +0.4% while core capital gds orders solid +0.8% following back-to-back declines in Nov/Dec.

Shipments slip 0.5% but core shipments solid +0.8%.

Business investment momentum has turned, but still decent: core #shipments +4.4% y/y & core orders +4.1% y/y pic.twitter.com/QiXsJGaS8E

— Gregory Daco (@GregDaco) March 13, 2019

Expert Outlook

Avery Shenfield of CICB World Markets stated that the drop core-durable goods orders is noteworthy and could point to an economic slowdown, adding that non-defense capital goods ex-aircraft had been performing poorly with only two out of the last six months reporting positive activity.

“That still leaves the last three months down 5.3% annualized from the prior 3 months, pointing to weakness in capital spending ahead,” he said.

James Picerno of CapitalSpectator.com took a different outlook, stating that the US economy may be rebounding after a soft patch, clarifying that he viewed the report as “encouraging but not definitive.”

Market Reaction

Gold is holding above the key line of psychological support of $1,300/oz and last traded up 0.90% at $1,307.97/oz with a high of $1,309.14/oz and a low of $1,298.16/oz. April gold futures last traded at $1,308.10/oz, up 0.77%.

The price of gold has ticked upward directly following the report- while on the surface the report looks positive for the economy, the drop in core-durable orders strengthens the view that US manufacturing has softened.