Durable Goods Orders Bounce Back in November

New orders for durable goods bounced back in November, rising 3.8 percent following an upwardly revised flat reading in October. Excluding the volatile transportation component, new orders rose 0.3 percent.

Aircraft Orders Lift The Headline Number

Durable goods orders for November rose a solid 3.8 percent due to a 73.3 percent jump in nondefense aircraft orders following the Dubai Air Show last month. Excluding the volatile transportation component, new orders rose a more modest 0.3 percent, suggesting some underlying softening of durable orders from the 1.5 percent rise registered in October. Primary metals orders posted another sizable 5.2 percent increase, while orders for computers and electronics as well as electrical equipment fell 4.4 percent and 1.2 percent, respectively. Defense orders came back slightly, rising 3.7 percent after a 22.0 percent decline in October. Now that the defense budget is set for the next federal fiscal year, some month-tomonth variability in defense orders should begin to subside. In the new move toward reigning in spending, the defense budget for 2012 suggests some ongoing downside risks to defense spending in the year ahead, which will likely weigh on headline durable goods orders over the next few months.

Capital Goods Orders Come Back In November

Capital goods orders for November rose 7.7 percent following two consecutive months of declines. Nondefense capital goods orders excluding aircraft fell a disappointing 1.2 percent following a decline in October of 0.9 percent. The softening nondefense capital goods orders ex-aircraft over the past two months points to a slowdown in the pace of capital goods demand. On a three-month annualized basis, nondefense capital goods orders excluding aircraft are still positive at 3.8 percent, but have slowed considerably from the 20.1 percent annualized pace observed back in June of this year. Shipments of nondefense capital goods ex-aircraft also slowed on the month, contracting 1.0 percent. The capital goods orders and shipments data point toward a slower pace of equipment and software spending in the fourth quarter, consistent with our forecast. We expect that equipment and software spending will slow to a 6.2 percent annualized pace in the fourth quarter from the solid 16.2 percent annualized pace observed in the third quarter of this year.

Inventories Continue To Edge Higher

Inventories of durable goods continued to rise for the 23rd consecutive month, increasing 0.6 percent in November after posting a 0.4 percent rise in the prior month. Durable goods inventories are now up 5.8 percent on a three-month annualized basis. The inventory building and pullback in shipments resulted in the inventory-to-shipments ratio rising to 1.82 months from October’s 1.80 months of supply. The softening in new orders in light of rising inventories suggests some downside risks to durable goods manufacturing in the first part of 2012.