New orders for durable goods fell by 2.5% in December, well below
market expectations for a 1.5% gain. This follows an upwardly revised
0.1% contraction on the previous month (previously reported as -1.3%).
The volatile transportation component was the main driver of the
overall decline in durable goods orders, with a contraction of 12.8%
on the month. In addition, declines were also registered in primary
metals (- 4.7%), computers and electronics (-1.2%), and electrical
equipment and appliances (-0.1%). A partial offset to those declines
came from machinery orders, which gained 10.6% during December.
Orders for durable goods excluding transportation equipment were up
0.5% on the month, a deceleration from November's strong 4.5%
expansion.
Core orders (i.e., non-defense capital goods excluding aircraft)
gained 1.3% on the month, in line with market expectations.
Durable goods inventories rose 0.6% during December, which combined
with a stronger increase in shipments to yield a decline in the
inventory-to-shipments ratio to 1.61 from 1.62 prior.
*Key Implications*
Although today's headline durable goods orders were disappointing, the
strong performance of core capital goods is encouraging. The latter
closed the fourth quarter growing at an annualized rate of 9%, which
signals investment in machinery and equipment will likely post
stronger growth during that period than we had anticipated.
This, in combination with recent solid gains in consumption
indicators, reinforces the likelihood of tomorrow's GDP release
showing an above-3% annualized growth rate, which would top the
previous two quarters.
This year we expect businesses investment in software and equipment to
grow at an annual pace in excess of 16%, which combined with solid
gains in household spending on durable goods and strong external
demand for U.S. capital goods, will bode well for the manufacturing
sector.
Source: ActionForex.Com
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