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    Durable Goods Orders and Business Spending Crash

    American consumers and businesses were in a dour mood in December slashing spending on long term goods even before the January turmoil in global markets dragged down U.S. equites.

    Orders for all durable goods fell 5.1 percent in December, the most since August 2014 and far more than the median -0.7 percent forecast, according to  Commerce Department data on Thursday.  November's originally flat result was revised down to a 0.5 percent loss.

    Annual orders for goods designed to last three years or more were down 1.7 percent from December 2014, following November’s 2.3 percent gain. For all of last year annual orders averaged a 3.2 percent loss monthly.  

    Booking for capital goods excluding military and aircraft orders, often called 'core capital goods' and a common proxy for general business investment, dropped 4.3 percent in December, likewise far below its -0.2 percent estimate and the worst reading on the commercial side of the economy since last February's 5.1 percent loss.  

    On the consumer side, the durable good orders mirror December's retail sales figures whch slipped 0.1 percent and  were flat when excluding automobiles and gasoline. The so-called 'retail sales control group' which charts the consumer contribution to GDP and is a companion of the 'core capital goods ' category above slumped 0.3 percent in December, far below the median prediction for a 0.3 percnt gain. 

    Placements for durable goods outside of the civilian aviation industry, in practice without the airliners of the Boeing Company of Chicago, declined 1.2 percent in December after November’s 0.5 percent drop, originally listed as unchanged.  Economists had predicted that December’s orders would show a small 0.1 percent decline. 

    In a blow to fourth quarter GDP expectations, shipments of non-military capital goods minus aircraft, the production category used to calculate gross domestic product, fell 0.2 percent in December a large miss of the 0.8 percent forecast.  Shipments in November were revised to negative 1.1 percent from the initial -0.3 percent reading.  Shipments dropped each month in the fourth quarter an average of 0.77 percent. Annual shipments in December were down 3.8 percent  after falling 0.4 percent in November.  yearly shipments have fallen for five straight months.  

    The Bureau of Economic Analysis, a division of the Commerce Department, will release its first estimate for annualized fourth quarter GDP tomorrow at 8:30 am New York time.

    The median estimate in the Bloomberg survey of economists is 0.8 percent. The Atlanta Fed's GDPNow model predicts 1.0 percent.  The U.S. economy expanded at a 2.0 percent rate in the third quarter and averaged 2.17 percent in the first three quarters of the year. 

    Commercial aircraft orders slipped 29.4 percent in December after sliding 23.3 percent a month earlier. Boeing Co. reported it received 223 orders for aircraft in December, the most in a year.

    Procurement for military equipment, almost exclusively the province of the Federal government and subject to wide swings, slumped 34.4 percent last month.  Demand for non-military items fell 2.9 percent after dropping 2.0 percent in November. 

    The plunge in crude oil prices has hit spending in the energy sector hard dragging down overall capital investment.  

    Weakening global economic growth headed by uncertainty about the state of affairs in China and a steep slide in resource and emerging market economies, has also  weighed on capital expenditures. Many companies are unwilling to commit to projects until a clearer picture of worldwide  demand emerges. 

     

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

    Charts: Bloomberg

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