Durable goods orders unexpectedly rise on aircraft demand

Posted Oct 29th 2008 10:00AM by Joseph Lazzaro
Filed under: Economic Data

U.S. durable goods orders increased 0.8% in September, boosted by strong demand for airplanes, the U.S. Commerce Department announced Wednesday.

Economists surveyed by Bloomberg News had expected September durable goods orders to fall 1.1%. Still, durable goods orders decreased a revised 5.5% in August, which was worse than the 4.5% decline announced earlier.

Transportation goods orders skewed the data higher, increasing 6.3% in the month. Excluding transportation, durable good orders declined 1.1% in September. Further, durable goods have now declined 1.8% on a year-over-year basis. However, durable goods orders have increased in four the past five months.

Economist David H. Wang told BloggingStocks Wednesday the durable goods report offered additional evidence of slowing economic activity, but it could have been worse.

"I expected to see an even bigger drop in manufactured goods demand, but do not misunderstand, outside of airplane demand, this is a weak report," Wang said. "With tighter credit for businesses and for consumers with auto purchases and other goods, we're going to continue to see further deterioration in durable good orders in the fall, before a recovery starts early next year."

Also in September, shipments increased 0.2%, inventories rose 0.4%. Wang said the build in inventories, which are rising faster than shipments, "is also indicative of slowing GDP."

"Third quarter GDP will show a contraction of -0.5% to -0.8% and the inventory build over shipments is consistent with that," Wang said. The Commerce Department will announce Q3 U.S. GDP Thursday at 8:30 a.m. EDT.

Economists closely monitor the durable goods order statistic because it projects how busy manufacturers are likely to be in the months ahead -- a major factor in industrial sector performance, and by extension, in the U.S economy.

Economic Analysis: As economist Wang noted, a weak durable goods report, absent airplane orders. Given slowing international demand and the pullback in U.S. consumer spending, the manufacturing sector remains a major concern for policy makers: it's really hard for the U.S. economy to grow at an adequate rate without a healthy manufacturing sector.

Tags: durable goods, DurableGoods, economy, inthenews