Overview: This week's economic releases—relook at the consumer

Part 9
Overview: This week's economic releases—relook at the consumer (Part 9 of 11)

Why durable goods orders are critical for transportation stocks?

U.S. Census Bureau: Durable goods orders report for May

The U.S. Census Bureau will release the Durable Goods Orders report for May on Wednesday, June 25. Durable goods orders include items that are meant to last three years or more. This report is closely watched by market participants because it provides a timely assessment of manufacturing sector activity. Durable goods orders also impact production levels for non-durable goods. The transportation sector is also significantly affected by the multiplier effect that these orders can have.

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Key takeaways from April’s release

Durable goods orders jumped 0.8% in April to $239.9 billion. April’s report had come in way ahead of market expectations, which had expected a decrease of 0.8%. This spurred the S&P 500 Index (SPY) to a record high of 1911.91 on May 27. Leading the surge, were orders for defense and transportation equipment, which increased by 32.5% and 2.3%, respectively, on a month-over-month (or MoM) basis.

Outlook

Defense goods orders played a very significant role in the sharp increase in April. Excluding defense goods, durable goods orders actually declined by 0.8% MoM. Transportation orders have been steadier this year, with April being the third consecutive monthly increase. Due to these factors, the increase in April is probably unlikely to be repeated in May. However, a more moderate increase may be on the cards.

Investors can invest in transportation stocks through the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN). Top ten holdings in both ETFs include investments in companies like FedEx (FDX) and Kirby Corp. (KEX).

In the next section, we’ll preview another manufacturing sector indicator—the Richmond Fed’s Survey of Fifth District Manufacturing Activity. Please continue reading the next section in this series.

 

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