U.S. Durable Goods Orders Fall Much More Than Expected

U.S. durable goods orders fell for the first time in the last four months in January, according to figures released Tuesday by the Commerce Department. New orders for manufactured durable goods dropped by $8.6 billion to $206.1 billion in January, a 4.0 percent decrease from December levels. The drop, which followed strong increases in December and November – 3.2 percent and 4.2 percent, respectively – was generally expected. However, most economists had forecast a much less severe decline of about 0.7 percent.

Peter Boockvar, managing director at Miller Tabak, said, “We may be seeing the aftermath of the pull forward of corporate cap ex into late 2011 due to companies taking advantage of the expired depreciation expense tax credit.”

“Thus, cap spending wasn’t as strong as it seemed in late 2011 and likely not as weak as it seems in January 2012,” he added.

The transportation sector saw some of the largest monthly declines in durable goods orders, with orders in the sector falling by 6.1 percent. A large drop in orders for civilian aircraft more than offset gains in other areas.

Excluding the drop in orders for transportation equipment, durable goods orders still fell by 3.2 percent in January compared to a 2.1 percent increase in December.

The report also showed notable decreases in orders for machinery and primary metals, which fell by 10.4 percent and 6.7 percent, respectively.

Additionally, the Commerce Department said orders for non-defense capital goods excluding aircraft, which is seen as a key indicator of capital spending, fell by 4.5 percent in January after rising by 3.4 percent in December.

Jennifer Lee, Senior Economist at BMO Capital Markets, said, “Even smoothing out the monthly moves, core capital goods orders are down 3.7% annualized in the three months to January, the first decline since June 2009.”

“Still, one month a trend does not make and the ISM orders component suggests better numbers ahead,” she added. “We shall see.”

The report also showed that shipments of durable goods rose for the second consecutive month, edging up by 0.4 percent in January following a 1.9 percent increase in December.

Inventories of durable goods increased for the twenty-fifth straight month, climbing by 0.7 percent in January after inching up by 0.3 percent in December