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Durable Goods Orders Drop 4 Percent

Blip on the radar or sign of things to come?

Today’s durable goods numbers from the Census Bureau were disappointing. New orders for durable goods fell 4 percent in January, with declines in a number of major sectors. Keeping it all in perspective, though, new orders rose 4.2 percent and 3.2 percent in November and December, and the $206.1 billion in new orders in January still outpaces the levels from October. New orders remain 8.8 percent higher than in January 2011.

A number of major sectors experienced declines in January for new orders. These were led by the transportation sector (down 6.1 percent), with decreases in both defense and nondefense aerospace orders for the month. (Nondefense aerospace figures are highly volatile due to the timing of when orders come in for new planes, and there was a large spike in sales in December.) Excluding transportation, new orders fell by 3.2 percent.

Other sectors with losses include machinery, primary metals, electrical equipment and computers. Nondefense capital goods fell 6.3 percent, reversing the 9.3 percent and 6.8 percent gains in the prior two months.

Meanwhile, shipments of durable goods rose 0.4 percent, below the 1.9 percent increase of December. Among shipments, the transportation sector did the strongest, up 5.4 percent, with strong gains in the aerospace sectors and for motor vehicles. Excluding transportation, shipments fell by 1.1 percent. Declines in machinery, computers and capital goods helped to drive this number lower in January.

Unfilled orders and inventories grew 0.5 percent and 0.7 percent, respectively, in January, continuing a long streak for both of them.

With my own past experience in warehouse management, logistics, and customs, I’m paused to say if this is good or bad.  It’s too early, could be a post-Christmas blip, and frankly one month never makes a trend.   Also, I’m more likely to take a look at another economic indicator tied to manufacturing (Inventories and Inventory to Sales Ratios) than I am durable goods orders to decide on economic growth.

Why Inventories?  Because that shows you if product is moving.  That tells you if new product needs to be made.  That tells you things are getting shipped.   If inventories grow, it tends to mean your economy’s stalling since no one’s buying much of anything.  If the reverse is happening, that tends to be a sign of economic growth.

So how are Inventories?  Currently, growing:

Inventories. – Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,555.5 billion, up 0.4 percent (±0.2%) from November 2011 and up 7.7 percent (±0.4%) from December 2010.

As for Inventory to Sales ratios, it’s holding steady.  December 2011 had a I:S ratio of 1.26.  It was 1.28 in December 2010.  That shows a pretty stagnant economy, not one that’s in “recovery” as we’ve been led to believe by the mainstream press.

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  • More likely a sign. I deliver in retail. Can you say s l o w?