U.S. Durable Orders Climb 3% in October

Nov 26, 2015

Orders for long-lasting goods rose in October, a gain that represents a big jump in the volatile aircraft category and a modest pickup elsewhere.

New orders for durable goods—refrigerators, combines and other products designed to last at least three years—increased a seasonally adjusted 3% in October from a month earlier, the Commerce Department said Wednesday.

Through the first 10 months of the year, durable-goods orders were down 4.2% compared with the same period in 2014.

The trends “point to ongoing business-investment sluggishness as global headwinds and low oil prices continue to weigh on activity,” said Gregory Daco, economist at Oxford Economics.

Economists surveyed by The Wall Street Journal had expected overall orders to increase by 1.8% in October. September durable-goods orders were revised to a 0.8% decrease from the previously estimated drop of 1.2%.

Through the first 10 months of the year, durable-goods orders were down 4.2% compared with the same period in 2014. The downturn reflects curtailed demand due to low oil prices, a strong dollar and slow overseas growth.

In October, orders for nondefense aircraft rose 81% to bolster the overall reading. Boeing Co., the nation’s largest aerospace firm, said orders for passenger jets doubled last month compared with September, on a nonseasonally adjusted basis.

Orders for motor vehicles and parts—which had been a bright spot among lackluster manufacturing figures this year—fell 2.9% in October.

Excluding transportation, durable-goods orders were up a more-modest 0.5% last month, though the gain was the best since June. Orders outside of transportation were down 2.7% through the first 10 months of the year.

Excluding defense, another volatile sector, durable orders were up 3.2% last month, but down 4% so far this year. Defense orders increased 1% in October.

A key measure of business investment rose in October. Orders for nondefense capital goods excluding aircraft—a proxy for company spending on equipment—increased 1.3% in October. The figure was down 3.8% through the first 10 months of the year.

Business investment peaked in September 2014 but has since trended lower, in part reflecting a hefty drop in spending on oil- and gas-field machinery. Orders for railroad equipment, another category tied to oil and gas production, and farm equipment have also slumped this year.

A stronger U.S. dollar and weak overseas demand may have also constrained sales, but better demand this month might suggest the effect is fading. Orders for machinery and computers increased last month. The stronger dollar makes U.S. products more expensive abroad and foreign goods cheaper at home.

“Drag from imports and exports should begin to wane as 2016 progresses, but it will be better like hitting one’s finger less frequently with a hammer is, rather than ‘happy days are here again,’” said IHS Global Insight economist Michael Montgomery.
Other measures of manufacturing have been mixed recently. The Institute for Supply Management’s manufacturing purchasing managers index barely remained in expansion territory last month. But the manufacturing component of the Federal Reserve’s industrial production index increased 0.4% in October, the best gain since July.

Manufacturing represents a fairly small slice of the overall U.S. economy, but the category is closely watched for the signals it sends about broader demand. With the global economy uneven, U.S. factories need to sell products to domestic customers. In a potentially worrying sign, consumer spending slowed in October despite solid income gains, according to a separate Commerce report.

Source: wsj.com