Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI comments on the Durable Goods report:
“Durable goods orders increased a strong 3.3 percent in September 2010. The details of the September increase, however, show that more than all the gain was in civilian and defense aerospace orders. Excluding transportation and defense orders, durable goods orders declined 1.6 percent last month,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. “A key indicator for capital equipment spending in the economy is nondefense capital goods orders excluding aircraft which fell 0.6 percent in September. Order activity is never smooth and recent reports have shown a mixture where the gains exceed losses by a wide margin. In the first nine months of this year, total durable goods orders are up 15 percent and nondefense capital goods orders excluding aircraft are 16.6 percent above the same period one year ago.
“Business equipment spending remains an important source of growth for the economy,” he added. “The breadth of the capital equipment rebound amid low utilization rates and sluggish economic growth shows that firms need to repair and replace equipment as production rebounds. In addition, postponed spending for high tech equipment has also come back faster than many in the industry expected. Corporations are very profitable and have the cash to make investments with internal funds.
“Strong export activity, aided by the declining dollar and, when accompanied by modest consumer spending growth, is enough to begin rebalancing the U.S. economy away from its excessive reliance on debt-based consumer spending and housing,” Meckstroth concluded.
National Association of Manufacturers (NAM) Chief Economist David Huether on today's Durable Goods report:
While soaring civilian aircraft (up 105 percent) lifted overall manufacturing orders in September, other manufacturers remained grounded last month. New orders for durable goods rose by 3.3 percent in September.
However, outside transportation, new orders fell by 0.8 percent, the second decline in the past three months. Moreover, the drop in new orders for primary and fabricated metals, computer and electronic products as well as motor vehicles for the second time in the past three months is a concerning sign for manufacturers. The growth in manufacturing production was cut in half in the third quarter from the pace of growth in the first half of the year.
Outside of aircraft, the only silver lining in today’s report is that new orders for machinery rose for a second consecutive month in September. Since machinery is one of the most export-oriented manufacturing industries, this is encouraging news for the export recovery that has been slowing in recent months.
Overall, today’s report signals that a further slowdown in the fourth quarter is likely to be in the making.
