Durable goods orders surged nearly 5% in January following two months of declines, buoyed by a strong surge in nondefense aircraft orders. Gains were also solid and broad-based outside of the volatile aircraft sector. Orders in the vehicle sector rose again, while previously lagging sectors showed signs of improvement. These included everything from computers and communications equipment to heavy machinery and fabricated metals. Primary metals also posted a negligible gain but that sector is still among the hardest-hit from the sharp contraction in investment in mining and extraction.
Core durable goods orders (nondefense and non-aircraft), which more closely track investment plans, also gained nearly 4%, signaling future business investment. The gains weren’t picked up in shipments for the month, however, which remained in the red. We still have some way to go to see overall business investment increase.
Separately, inventories are still on a downswing. The steel industry remains one of the worst sectors; that will weigh on manufacturing activity well into spring.
Bottom Line: The data on durable goods is encouraging and suggests that the drag from the oil sector may finally be abating. The breadth of gains is also encouraging. That said, we are not out of the woods on business investment, which has lagged relative to profits in recent years and appears to be undermining productivity growth. We also need to see more consistent gain in orders.