Market Overview

Durable Goods Orders Signal a Struggling Industrial Sector

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Durable Goods Orders are collected 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 March increased 0.2 percent, which was in-line with the 0.2 percent estimate. Core Durable Goods Orders (ex-transportation) decreased more than expected, reading a decline of 0.6 percent versus an estimated increase of 0.8 percent. This is essentially bearish for the manufacturing sector and negative for general economic growth in the United States.

US equity futures spiked lower in pre-market trading after the worse than expected reading.

According to the report, new orders for manufactured durable goods in April increased $0.3 billion or 0.2 percent to $215.5 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 3.7 percent March decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders increased 1.2 percent.

Inventories of manufactured durable goods in April, up twenty-seven of the last twenty-eight months, increased $1.1 billion or 0.3 percent to $364.1 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent March increase.

Revised and recently benchmarked seasonally adjusted March figures for all manufacturing industries were: new orders, $470.1 billion (revised from $469.7 billion); shipments, $476.0 billion (revised from $475.7 billion); unfilled orders, $986.0 billion (revised from $986.3 billion); and total inventories, $607.9 billion (revised from $608.1 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:
  • Short general industrial companies like Illinois Tool Works (NYSE: ITW) or Caterpillar (NYSE: CAT) as these companies will not benefit for decreasing industrial orders.
  • Also, short 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, long defense contractors like Northrop Grumman (NYSE: NOC) because these companies may be oversold.
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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