Market Overview

Durable Goods Orders Signal a Struggling Industrial Sector

Durable Goods Orders are compiled from results of the U.S. Census Bureau's Manufacturers' Shipments, Inventories, and Orders survey. This survey provides data on manufacturers' value of shipments, new orders, end-of-month unfilled orders, end-of-month total inventory and inventories by stage of fabrication.

According to the US Census Bureau, Durable Goods Orders in January decreased 4.0 percent, which was lower than the -1.0 percent estimate. Core Durable Goods Orders (ex-transportation) also decreased more than expected, reading -3.2 percent versus a 0.0 percent estimate. This is essentially bearish for the manufacturing sector and negative for general economic growth in the United States.

US equity futures spiked lower on above average pre-market trading volume after this poor reading in the manufacturing sector.

According to the report, new orders for manufactured durable goods in January decreased $8.6 billion or 4.0 percent to $206.1 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases, followed a 3.2 percent December increase. Excluding transportation, new orders decreased 3.2 percent. Excluding defense, new orders decreased 4.5 percent.

Transportation equipment, down following two consecutive monthly increases, had the largest decrease, $3.6 billion or 6.1 percent to $55.2 billion. This was due to nondefense aircraft and parts, which decreased $3.8 billion.


ACTION ITEMS:

Bullish:
Traders who believe that Durable Goods Orders is a leading indicator for the US economy, you might want to consider the following trades:
  • Long general industrial (NYSE: XLI) companies like Illinois Tool Works (NYSE: ITW) or Caterpillar (NYSE: CAT) as these companies will benefit for increasing industrial production.
  • Also, long material (NYSE: XLB) companies like Dow Chemical (NYSE: DOW) or Alcoa (NYSE: AA)
Bearish:
Traders who do not believe that the manufacturing survey is a leading indicator for the general US economy, you may consider alternative positions:
  • Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if the economy is struggling, people still need to buy staple products like shampoo and toothpaste.
  • Also, short big-ticket appliance makers like Whirlpool (NYSE: WHR) if the manufacturing trend is worse-than-expected.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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