The durable goods report looks awful but the report isn’t as bad as it looks at first glance. The details aren’t great, but they are much better than the headline number.
Understanding the Big Swings
Big swings in durable goods are due to wild swings in aircraft orders.
I don’t show aircraft orders because they would dwarf everything else. For example, nondefense aircraft orders fell nearly 50 percent this month after rising nearly 100 percent last month.
It’s best to focus on the other numbers.
I added two new columns this morning. The first is Core Capital Goods defined as Nondefense Capital Goods Excluding Aircraft. The second is Shipments. It’s primarily shipments that impact GDP.
Advance Report
Today’s Advance Durable Goods Report is a subset of the Factory Orders report that follows with a lag.
The full report contains nondurable goods and other data points not included in the advance report.
New Orders: New orders for manufactured durable goods in October, down three of the last four months, decreased $16.0 billion or 5.4 percent to $279.4 billion. Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders decreased 6.7 percent. Transportation equipment, also down three of the last four months, drove the decrease, $16.0 billion or 14.8 percent to $92.1 billion.
Shipments: Shipments of manufactured durable goods in October, down three of the last four months, decreased $2.4 billion or 0.9 percent to $280.4 billion. Transportation equipment, down four of the last five months, led the decrease, $2.1 billion or 2.3 percent to $88.4 billion.
Inventories: Inventories of manufactured durable goods in October, up three consecutive months, increased $1.5 billion or 0.3 percent to $525.1 billion. Transportation equipment, also up three consecutive months, led the increase, $1.1 billion or 0.6 percent to $165.9 billion.
Capital Goods: Nondefense new orders for capital goods in October decreased $15.8 billion or 15.6 percent to $85.3 billion. Shipments decreased $0.2 billion or 0.3 percent to $82.9 billion.
Durable Goods New Orders in Millions of Dollars
That’s a much better way of looking at things but it is still hard to read. Let’s hone in on the key details month-over-month.
Shipments, motor vehicles and parts, and core capital goods are all down two consecutive months. Excluding transportation new orders were flat.
Shipments, which feed GDP, were down 0.6 percent in September and another 0.9 percent in October.
This was not a great report, or even a good one, but it isn’t as bad as the -5.4 percent headline number.
Motor vehicles and shipments were the worst part or the report. But it’s hard to say how much of an impact the UAW strike had on those items.
Inflation Keeps Taking a Toll
Elsewhere, inflation is worse than Biden wants you to believe, especially rent and food.
For discussion, please see Falling Rent is Extremely Rare, Yet Economists Keep Expecting That
Also note The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent
Food and rent explain the polls that show consumers are in a bad mood.
[…] Graph from MishTalk. […]
Growing up I was a big New Order fan.
Speaking for myself but we will be cutting back big time and we are in the top 2%. Inflation and rubber band effect of spending covid savings is over. 2024 will be a very lean year in our household and may feel more like 2012.
Would be nice to have a dive in vehicle prices. The prediction they will crash this fall was fake, but then, it was only Youtube.
As I’ve been saying for a long while now, there is a wage vs housing cost inflationary spiral that new construction will not be able to fix. There are only three possible ways out: (1) phase out investment tax breaks associated with home ownership, as doing so would incentivize investors to sell some of their rentals, (2) massive unemployment spike. A small spike will not do the job, since Fed pandemic ZIRP and MBS purchases threw things so far out of whack, or (3) keep Fed fund rates exactly where they are at for at least two straight years, allowing time to heal all wounds.
I think 2 is a given, but won’t take place until Biden Inc. stops giving everything away.
I don’t think if you tried 3, that it would make a difference. It’s not what you expect to pay and for how much, but rather you will pay $X for whatever it is, period!
Now 1 is tricky. There would be a lot of repercussion possibilities, that are truly unknown. Everybody’s situation is unique and therefore cannot truly be calculated out. I think building low cost housing as a decent $% of all new building being done, so no matter what kind (Comm. Res. Condo Homes police departments, so no matter. A certain financial condition (%) must be made and put in play before or during, but not afterwards, or no permit to build. Not sure how or what, but seems to me, to be more effective.
Agree. I hope Jerome doesn’t cave. There I’d plenty of money in the system and a healthy underground economy. The economy is still strong and until unemployment rises appreciably there won’t be a true capitulation.
SPY closed the gap.
Don’t worry, AI is going to save the world and its markets.
Possibly true. Somewhere between five and 10 years from now, 15% of all white collar knowledge workers will no longer have a job due to AI. The excess labor in the market should drive down (high income) wages and prices. Select company stocks will rocket higher, while fewer will fall.
I do a bit of work in AI. It’s possible that 15% of knowledge workers will be out of a job since a lot of them really don’t have the mathematical or programming background to be very good at it. Of courses, 99% are more knowledgeable than management…. My basic view of AI is that it’s overrated, at least for now, which is not to say it won’t be a big deal in the future, for better or for worse. Essentially, if AI or machine learning was really effective (other than gaming social media) some corporation would have used it to make a trillion dollars on the stock market, you have to be right only 51% of the time, after all. The stock market should be ideal for AI/ML: an infinite amount of data over time and a thousand stocks to test the AI/ML predictions with, but no one has managed to solve the problem. Of course, if the stock market is essentially a random or chaotic system then it might not have a solution for prediction. Still, guys like Warren Buffet have done pretty well for themselves and I doubt it’s due to chance.
Two examples: (1) Generating Sales Leads. A huge amount of time/effort is wasted just trying to pitch ideas that someone will take a bite of. With the ability for AI to “know” customers in depth without never having met them, the AI can tailor the tone and content of cold calls to optimize response rates, and generative AI is a good bullshitter, er salesperson, if you have ever read the output. Once the response comes in, a human takes over, with the AI giving a summary bio of the potential customer, along with the text of any conversations to date. (2) “Intelligent” research assistant. Imagine feeding thousands of research papers concerning a niche field of study into the AI, where the AI can also scan and interpret any charts, figures, etc. in those research papers. This AI could know *everything* about a given niche of subject matter, and while it can’t think, it *can* respond “intelligently” to complex questions concerning the subject matter. No need for colleagues to make progress any more, you can ask this AI about all the corners of knowledge, and it will know more about the subject than any human alive. Again, it can’t think, but it can yield exceptonal data relating to crazy hard questions containing a lot of requirements and constraints. Those are two unrelated areas, and already it’s enough to eliminate the need for at least half the number of workers needed in those areas.
It would be glorious to behold those greedy corporations reporting losses on a massive scale.
Especially those car-dealers that extorted buyers by charging market-adjustments over MSRP. Plenty of reports on overflowing lots and no sales brings me great joy.
Especially knowing the quality has gone downhill and the prices have skyrocketed beyond reason.
Or producers of food using shrinkflation.
The cure for high prices are high prices.
There are consequences for having excessive greed.
So let them bleed.
I boycott UAW products. You never know whether you’ll find an empty beer can in your gas tank. UAW sucks all the quality out of the product before the name goes on. I guarantee you Japanese transportation sales are up.
I just stumbled upon a Toyota dealership in Panama City FL having plenty Corolla’s in stock at a discount. Sub 24k for a new vehicle is pretty great.
Please buy these so 20 years from now I might be able to find and afford one of them.
A vehicle built with integrity holds its value. My Toyota is 38 years old and runs like new.
How many miles??!!
Watch out for water damaged cars that look all new but were actually just cleaned up. Those are an almost annual occurrence on the gulf coast. I’ve seen dealers try to pawn these new vehicles off to other parts of country with unsuspecting buyers.