Capital Goods "Split Decision" Points To Uncertain Economy
As expected, the January Durable Goods was a big miss to expectations, printing at -5.2% on an anticipated plunge in aircraft orders, worse than the expected -4.8%, and a plunge from the downward revised 4.3% in December. However, where there was a glimmer of hope, was the ex-transportation number, which rose modestly from 1.0% to 1.9%, on expectations of a 0.2% flat print. More curious, was the schizophrenic split in Capital Goods Nondefense ex aircraft, notably the Orders, which soared 6.3% on expectations of a 0.0% print, and up from a revised -0.3% in December, versus a drop in Shipments of -1.0%, down from 0.2% previously. As Bloomberg's Joe Brusueals called it, a "classic split decision" reflecting fiscal drag via reduced defense spending, modest gains in core economy. Bloomberg economist Rich Yamarone added that the decline in shipments of nondefense capital goods ex-aircraft was "not a promising start" for 1Q business investment. We agree, as uncertainty in the US economy is back on the table and adding to European uncertainty.
One thing however is unmissable: on a year over year basis, both shipments and orders are rapidly rolling over.