Durable Goods Orders: Core Suggests Modest Start to 4Q Investment

Bottom Line: Durable goods orders rose sharply more than expected in October. Although they have climbed at a 23.8% annualized rate in the last three months, this reflects sharp swings in aircraft orders, evidenced by 85 aircraft orders in this report compared to 55 in September. Looking at the past 12 months, hardgood orders have increased at a modest 2.1% annualized rate. And non-defense ex-air orders are still down over 4% in the last year. That said, the October level of nondefense capital goods shipments ex-aircraft, proxies for equipment and software investment, is 1.8% above its Q3 level, suggesting that 4th Quarter GDP started with a modest boost from capital spending. Durable Goods Orders ROSE by 4.8% in October, compared with market expectations for an increase of 1.7%. Moreover, the prior month was revised higher from -0.1% to 0.4%. Transportation Orders ROSE by 12.0% with civilian aircraft orders climbing by 94.1% while motor vehicle orders fell by 0.6%. Ex-transportation orders ROSE by 1.0%. Electrical equipment, fabricated metal products increased while primary metals, declined. Core Durable Goods Orders, those excluding both civilian aircraft and defense, ROSE by 0.3% and are 0.6% ABOVE their year ago level. Nondefense Capital Goods Shipments FELL. Including civilian aircraft, they FELL by 0.6% and excluding them they ROSE by 0.2%. Durable manufacturing inventories were UNCHANGED. Finally, the October level of nondefense capital goods shipments ex-aircraft, proxies for equipment and software investment, is modestly above its Q3 level, suggesting that capital spending will have a positive Q4 impact on GDP growth.