US Durable Goods Orders: Strength in underlying details of report - Wells Fargo

According to analysts from Wells Fargo, durable goods orders were not quite as strong as most analysts had expected, but the underlying details show continued strength among producers of durable goods.

Key Quotes: 

“Data released today showed that durable goods orders rose 1.3 percent in November relative to the previous month, which was not as strong as most analysts had expected. That said, we would not necessarily characterize the report as “weak.” For starters, the 0.8 percent drop in orders that was originally reported for October was revised to a decline of 0.4 percent. So November’s gain more than made up for the loss that was registered during the previous month. Moreover, some of the “core” categories of the report continue to exhibit underlying strength.”

“Drilling down into the report shows that orders for computers and electronics edged down 0.3 percent while machinery orders fell 1.1 percent. But declines in both of these categories in November follow very strong increases that were registered in October. Helping to boost total orders in November was the 14.5 percent jump in non-defense aircraft and the 4.8 percent increase in defense goods. Due to the volatility that is inherent in orders for aircraft and defense goods, analysts often focus on nondefense capital goods excluding aircraft.”

“Manufacturers of durable goods continue to add to their stocks as inventories of durable goods rose 0.2 percent in November. But this stock building seems to be intentional due to strong shipments. Indeed, the inventories-to-shipments ratio, which rose when the manufacturing sector weakened in 2015-2016, edged down for the fourth consecutive month in November (bottom chart). In sum, we view today’s report on durable goods manufacturing as generally favorable, and we look for continued strength in the manufacturing sector for the foreseeable future.”