Wild Ride on Durable Goods: “Troubling signal for investment and economic growth”

By SBE Council at 27 February, 2023, 8:06 pm

by Raymond J. Keating –

The latest durable goods report from the U.S. Census Bureau shows new orders taking a dive in January in a stretch of wild monthly moves.

Specifically, new orders for manufactured durable goods declined in two of the last three months, with the January drop registering 4.5 percent. That followed on a 5.1 percent increase in December, and a 1.8 percent decline in November.

Transportation orders had a big impact. If we look at durable goods orders excluding transportation, January came in at +0.7 percent, following on December’s -0.4 percent and November’s 0.0 percent.

It’s important to look at capital goods, that is, goods that produce other goods, or investment. Total capital goods experienced, again, a wild ride over the past three months, with changes coming in at -12.8 percent in January, +14.6 percent in December, and -4.6 percent in November.

A key indicator here is nondefense capital goods excluding aircraft orders, which serves as an estimate of private investment in equipment and software in forthcoming GDP data. New orders in this measure grew by 0.8 percent, after two months of decline (-0.3 percent in December and -0.2 percent in November).

Source: Federal Reserve Bank of St. Louis, FRED

In fact, as noted in the above chart, nondefense capital goods excluding aircraft orders showed strong recovery and growth after the pandemic hit through August 2022. But over the past five months, we’ve seen stagnation.

That’s a troubling signal for investment, and for economic growth in the near term and over the longer haul. Hopefully, the growth in January will carry forward, but it must be noted that nothing positive is developing on the policy front that will help spur private investment.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.