New Orders in Durable Goods declined -1.3% for August 2010. New orders has declined 3 of the past 4 months, with July showing a slight 0.7% increase. New orders in capital goods dropped -0.9%. Core capital goods new orders jumped +4.1%.
All of the bad news is with aircraft & parts, non-defense, with new orders being down -40.2% and shipments dropping -13.5%. Aircraft is notoriously volatile. Who orders a billion dollar jet every day? Transportation new orders alone dropped -10.3% in August. That said, autos (vehicles & parts), didn't fare so well either, with new orders down -5.0% and shipments down -4.4%. In the Advance Report on Durable Goods Manufacturers' Shipments, Inventories, and Orders:
Excluding transportation, new orders increased 2.0 percent. Excluding defense, new orders decreased 1.2 percent.
Shipments, which contributes to the investment component of GDP, has some bad news. Shipments are down -1.5% in August. Yet shipments in core capital goods rose 1.6%. Before we continue, there is a lot of confusion about precisely which shipment metric is a good approximation for the investment component of GDP. It is the total which gives a better feel. The reason? While core capital goods shipment is a good approximation for part of the investment GDP calculation, it sure isn't all.
Producer's Durable Equipment (PDE) is part of the GDP investment metric. It is not all, but part of the total investment categories for GDP, usually contributing about 50% to the total investment metric (except recently where inventories have been the dominant factor).
Producer's Durable Equipment (PDE) is about 75%, or 3/4th of the durable goods core capital goods shipments, used as an approximation. So, we see some good news here with a 1.6% increase in core capital goods shipments with approximating PDE, which is part of the GDP investment component. Now, part, means part, air-o-planes and vehicles are also included in PDE. So, in other words, while core capital goods shipments are up, uh, vehicles and air-o-planes are way, way down, which means PDE also will be weighted down with the negative shipment values of autos and aircraft, nondefense.
So watch out for cherry pickers ignoring the bad apples on the tree in analyzing durable goods reports.
Inventories, which also contributes to GDP, were up +0.4% in August 2010 for manufactured durable goods.
Below are core capital goods, a leading indicator of future economic growth. It's all of the stuff used to make other stuff, kind of an future investment in the business meter. Core capital goods, which excludes defense and aircraft, new orders are up 4.1%. Shipments are up 1.6%. Two things to note, core capital goods has not recovered to 2007 levels but this month are some pretty decent numbers, masked by the bad news on air-o-planes.