By Guglielmo Mattioli
Orders for long-lasting manufactured goods picked up in January, recovering from previous month record low and exceeding economists’ expectations.
In January, orders climbed up to 4.9% compared to December when they hit a 16 month record decline nearing -5.1%. The report ended a negative trend that was ongoing since October 2015 and sparked hope that the economy is picking up again.
Economists expected a 2.7% growth but durable goods are difficult to predict because of their volatile nature. In particular transportation orders may vary from month to month skewing the average numbers.
Indeed, 3% of January order’s increase was due to transportation, namely civilian aircraft with Boeing seeing rising orders coming mostly from the domestic market, showing once again how a strong dollar hurts the company’s exports. Transportation defense drove up the rating with an 84% order increase of military aircraft.
Excluding transportation, durable good new orders grew 1.8% against an averagely forecast of 0%. The best performing subcategory was capital goods with a 20% growth from December 2015.
But there is not a general consensus on how strong this uptick really is. Put into context, today’s report actually revealed we are back to last year’s October levels.
“Every single category in the report rose,” said Andrew Opdyke, from First Trust Portfolios L.P., investment firm based in Illinois. At First Trust are convinced that the economy is off to a steady growth, although not as strong as many had wished. “We call this a plow horse economy, not yet a horse race economy, ” Opdyke said.
January performance, although above expectations, didn’t really make up for December’s drop and businesses’ inventory 6-month decline could be a bad sign, meaning companies have stopped stacking reserves and the economy is slowing down underlined Andrew Zatlin, founder of South Bay Research advisory firm.
Furthermore, capital goods, goods that companies own to produce other goods, for example machines to build factories, were down $4 billion or 3% compared to October 2015, yet another worrying sign. Capital goods orders show us whether or not companies are making long-term investments in strategic assets. If they forecast economic growth they invest in capital goods trusting they will have a return in few years, but if they predict a contraction they halt capital investments.
“It (the report) looks tasty, but is not as tasty as it looks,” said Zatlin.
