US Durables not so durable; Commercial aircraft orders collapse in January

Preliminary data on Durables, goods that are expected to have a life of at least three years tumbled 4.5% MoM in January, registering the lowest print since April 2020.

This was lower than market estimates of -4.0% following an above-expectations performance in December.

The measure was impacted by a deep contraction in orders of non-defence aircraft and associated parts, which crashed 54.6% in January alone.

The sharp pullback reflected weaker travel demand across both business and vacation segments, possibly following the declines in the stock market over the latter half of the month.

The impact of the severe downturn in this segment is clear from the growth in Durables ex Transportation which jumped 0.7% MoM, the highest increase since March 2022 and recovered from a decline of 0.4% in December.

This was well above the expectations of an unchanged reading.

Regarding the poor demand for commercial aircraft, Steven van Metre, a Certified Financial Planner at Atlas Financial Advisors, noted, 

…there’s a difference between moving around in a volatile fashion and dropping by 54.6 per cent, that’s a staggering crash…

The silver lining in the release was the strong rebound of 0.8% MoM in core capital goods excluding aircraft and defence-related hardware, which is a proxy for capital investment in the broader economy.

December data for the same had shown a contraction of 0.3% MoM.

Core capital goods shipments were up 1.1%, the highest level in 4 months, indicating that business expenditure on equipment likely improved.

Dallas Fed manufacturing

The general business activity index published by the Dallas Fed for February 2023 moderated to -13.5 from -8.4 in January, staying in negative territory since April 2022.

The index of new orders was negative for a ninth consecutive month, falling to -13.2, a change of -9.2 points since January.

Employment in February eased by -1.0 after the sharp expansion of 17.6 in the previous month.

On a positive note, the future production index shifted from 16.1 to 23.1, suggesting the likelihood of higher manufacturing output in the coming months.

Expectations

Although the month signalled an improvement in capital investment, it was only up by 1.6% YoY.

The rising likelihood of additional monetary tightening may turn capital investment negative in the following report, negatively impacting durable goods.

This article on Invezz discusses the turnaround in inflationary pressures that the US is currently facing.

Markets will have their eye on travel and tourism data in the coming weeks and months to gauge if manufacturing demand could experience a further slowdown.

With manufacturing tending to lead economic activity, the downturn in durable goods orders may soon pull the services sector lower.

Moreover, the transportation print could bode poorly for Q1 GDP estimates.