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Durable Goods Orders Fell in February 2015

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The report

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders is more commonly known as the “durable goods orders report.” It provides data for orders received from durable goods manufacturers who make goods that last three or more years. The final report is known as the “new factory orders report.” It’s released with a month’s lag.

The report is important because it indicates businesses’ mood. A rising number indicates businesses’ confidence. They won’t place orders for long-lasting goods until they’re confident in the economy. This release shows factories’ profitability. An increase in orders means that factories will be busy fulfilling the orders in the coming months.

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Orders fall

Durable goods orders fell 1.4% in February 2015 to $231.3 billion. In January 2015, orders rose by 2%. This was downwardly revised from a previously reported 2.8% rise. New orders fell in five out of the past seven months. The strength of the US dollar is hurting manufacturers. Overseas companies aren’t placing orders with US factories because of the expensive products. Also, oil companies continue to refrain from placing orders for new equipment because crude oil prices are still depressed.

The transportation equipment category is volatile. Excluding it, new orders decreased 0.4% month-over-month. New orders for transportation equipment fell 3.5% in February. This followed a downwardly revised 8.8% rise in the previous month. Under this category, orders for civilian aircraft declined by 8.9% in February. It increased by a staggering 122.2% in the previous month. This shows the transportation category’s volatility.

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Orders for non-military capital goods, excluding aircraft, are considered a proxy for future business investment. Orders fell 1.4% in February. A decline was registered for the sixth month in a row. It followed a 0.1% decline in the previous month. Shipments of non-military capital goods, excluding aircraft, are used to calculate US economic output. It increased by 0.2% in February. This was after a 0.4% fall in January.

Importance

Defense equipment and commercial airplane manufacturers are high-value and keenly tracked companies. As a result, this report can help you assess companies’ future profitability—like Lockheed Martin (LMT). Auto companies’ shares—like Ford (F) and General Motors (GM)—are also closely watched.

Transportation-focused ETFs like the iShares Dow Jones Transportation Average Index Fund (IYT) and industrial-focused ETFs like the SPDR Industrial Select Sector Fund (XLI) are also closely associated with this report.

In the next part of this series, we’ll look at Markit’s “flash” PMI (purchasing managers’ index) report for the US.

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