Market Overview

Durable Goods Orders Rise in February, Internal Data Mixed

Durable Goods Orders Rise in February, Internal Data Mixed

Durable Goods Orders for February rose faster than expected in February, however the internal data of the report paints a less rosy picture of corporate spending on fixed assets in the month. For February, Durable Goods Orders rose 5.7 percent, beating estimates of a gain of 3.8 percent and better than January's decline of 4.9 percent.

However, the report was not as rosy as the headline number. Ex-transportation sales, excluding volatile items such as aircraft, Durable Goods Orders fell 0.5 percent vs. an expected gain of 0.5 percent. Excluding defense spending, Durable Goods Orders actually gained 4.5 percent vs. a 0.1 percent drop in January, showing that government spending continues to be a drag on the economy.

Lastly, the much watched Non-Defense Durable Goods Orders Excluding Aircraft, a good measure of underlying corporate spending, fell 2.7 percent in February, worse than the 1.2 percent drop expected and below January's gain of 7.2 percent.

The Census Bureau, in the report, noted that transportation equipment drove the increase in overall orders growth, growing 21.7 percent in the month. Thus, the number excluding transportation items was weak.

Another positive sign for the U.S. economy was the continued growth in Unfilled Orders. Unfilled Orders are a good measure of the order backlog, showing the potential for more filled orders to go through over the coming months. Unfilled Orders increased 0.9 percent in February following a 0.1 percent gain in January and have increase for five of the last six months.

Overall, the figures point to a continued slow growth environment in the U.S. Also, the Durable Goods report showed that the federal government and fiscal spending continue to be a drag on the U.S. economy. Defense spending on capital goods has fallen substantially over the past twelve months, with shipments of capital goods declining 1.3 percent and new orders on capital goods orders declining a whopping 15.4 percent from a year ago.

In sum, the data points to a mixed bag in the world of corporate spending. Remember, spending may have also slowed in February due to fears over the Sequester and also due to mandatory cuts stemming from the Fiscal Cliff. Expect government spending to continue to be a drag on reports such as Durable Goods over the next several months as the government shrinks spending to curb deficits.


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