December durable goods miss expectations

January 25, 2024

Durable goods orders were unchanged in December, missing expectations for a 1.5% increase. Once again, it’s an aircraft story. In November, durable goods orders soared 5.5% due to a surge in orders signed at the Dubai Air Show, meaning some giveback was likely.

Excluding the impact of transportation orders, durable goods orders posted a solid increase of 0.6% after rising by 0.5% in November. This is the number that matters more in the December report. Excluding transportation, the consensus was expecting a 0.2% rise.

Transportation orders fell 0.9% in December after rising 15.3% in November. Civilian aircraft orders edged 0.4% higher in December after soaring 84% in November. Defense aircraft orders also contributed to the December weakness as they fell 2.9%.

Away from aircraft, the motor vehicles and parts industry continues to recover after the end of the UAW strike. These orders rose 0.4% in December after rising 3% in November. The more muted increase in December likely represents a shift away from battery electric vehicle (BEV) production, which are falling short of sales targets. Consumers are voting with their wallets, as well as diversifying their risk like range anxiety, by instead purchasing hybrids or internal combustion engine vehicles. The recent experience of BEV owners in Chicago heightened this anxiety further. The deep freeze sharply reduced the operating range; some were literally frozen out of their vehicles due to depleted batteries.

Many suppliers continue to benefit from a surge in manufacturing plant construction in the aftermath of the signing of the CHIPs Act and IRA. Orders for electrical equipment rose 1.8% in December after rising nearly the same amount in November. Primary metals rose 1.4% while fabricated metals increased 0.9%. Orders for communications equipment were up 5.2%; computer product orders fell 1.4%, the latter category taking a breather following gains in recent months. Machinery orders increased 0.2%.

Along with the durable goods orders report, GDP for the fourth quarter was also released today. Business investment rose 1.9% at a seasonally adjusted annual rate, which fell short of our expectations for a 4% increase and follows a 1.4% rise in the third quarter. Spending on structures rose 3.2% while equipment increased 1%.

Core orders, which represent capital goods orders excluding defense and aircraft, and are a proxy for future business spending, rose 0.3%, ahead of the 0.1% consensus expectation. Core orders were up 1% in November. These numbers suggest continuing momentum in capital spending into early 2024.