Durable goods orders disappoint

February 27, 2024

January durable goods orders plunged 6.1%, exceeding the median consensus estimate of down 5%. A sharp drop in aircraft orders was the primary factor in the decline in orders. However, orders associated with generative AI and manufacturing plant construction continued to show strength.

Transportation orders fell 16.2% in January, the largest decline since the COVID recession when these orders declined 46%. Nondefense aircraft orders fell 59% as Boeing recorded orders of only three aircraft in January versus 371 plane orders in December. That was the lowest number of Boeing orders since October 2020.

Orders for motor vehicles and parts fell 0.4% as automakers grapple with excess inventories. New vehicle inventory is reported to be running at 80 days. That is considerably higher than the 60-day norm before COVID. Vehicle affordability is an issue ranging from high vehicle prices, high financing rates and rising insurance costs. For some automakers, the electric vehicle (EV) transition is not happening as fast as forecast. There was a scaling back of EV production at the start of the year. The scaling back of motor vehicle orders has filtered through to other sectors of the manufacturing industry. Primary metals orders fell 1.7%, fabricated metals orders declined 0.9% and machinery orders were flat.

Excluding the impact of transportation orders, durable goods orders were still soft, declining by 0.3%. That was below the consensus estimate of 0.2%.

Two industries that continued to outperform other sectors included computers and electronic products and electrical equipment. Orders for computers and electronic products jumped 1.8%, the largest increase in nearly a year. Generative AI demand continues to propel this sector forward. On an annualized basis, these orders rose 5.4% in January, far outpacing the growth in other industries. Orders for electrical equipment rose 0.9% in January; they were lifted by ongoing manufacturing plant construction arising from the CHIPs Act. The dollar value of electrical equipment orders is near an all-time high.

Nondefense capital goods shipments excluding aircraft, which serve as a proxy for nonresidential investment spending in the current quarter, rose a solid 0.8% in January. That aligns with our forecast for 2.5% growth in business investment for the first quarter and GDP growth of 2.5% on a seasonally adjusted, annualized basis.

Core orders, which represent capital goods orders excluding defense and aircraft and are a proxy for future business spending, rose 0.1%, a weak outcome. The trend is now softer when downward revisions in the fourth quarter are considered. December was revised lower to down 0.6% from the originally reported increase of up 0.2%; October was revised lower as well.