On Monday, shortly after the opening bell, the Commerce Department reported that new orders for manufactured goods (durable and nondurable) in February ticked down 0.5% (or $2.6 billion), to $497.5.5 billion, in line with expectations following a flat January reading. This is a crucial reading as manufacturing is responsible for roughly 12% of the U.S. economy.
Breaking down the reading, new orders for manufactured durable goods decreased 1.6% to $250.5 billion, in line with expectations. Leading was a 4.5% decline in orders for transportation equipment. On the other hand, new orders for manufactured nondurable goods advanced 0.6% to $247.0 billion.
In addition to new orders, shipments of manufactured durable goods increased 0.2% to $258.5 billion, following a 0.5% decline in January. Leading the advance was a 1.0% increase in shipments of computers and electronic products. Shipments of nondurable goods also increased, advancing 0.6% to $247.0 billion, following a 0.1% decline in January, and was led by a 2.8% increase in shipments of petroleum and coal products.
Unfilled orders for durable goods fell 0.3% to $1,177.6 billion, led by a 0.4% downtick in unfilled orders for transportation equipment. This followed a 0.1% increase in January.
Lastly, inventories of manufactured durable goods rose 0.3% to $418.9 billion following a 0.5% increase in January. The rise in January was led by a 1.0% increase in inventories of transportation equipment. Additionally, inventories of nondurable goods increased 0.3% to $268.9 billion, following a 0.6% advance in January, and was led by 2.3% increase in inventories of petroleum and coal product.
Importantly, new orders of non-defense capital goods excluding aircraft (i.e., core capital goods) ticked down 0.1% in February, following a 0.9% advance in January and a 0.8% decline in December. Recall, capital goods are not sold to consumers, rather they are tangible goods used in the manufacturing of consumer goods. For this reason, core capital goods are a key metric that many consider to be a proxy for business investments. It is important to consider new orders for capital goods excluding transportation equipment (planes and automobiles) because the high value of these goods can easily skew month-to-month readings, increasing volatility and making it more difficult to analyze the underlying trend.
Shipments for core capital goods also decreased 0.1% in February, following a 1.0% increase in January and a 0.1% increase in December.
All in all, we view the reading as supportive of our view that the U.S. economic expansion remains on track and we are encouraged by the rebound in new orders of core capital goods as businesses would not look to order capital equipment if management teams were fearing a recession on the horizon. That said, this is a backward looking estimate and as a result, we believe the most single important item to monitor in coming weeks in relation to gauging future economic activity and the ability for the expansion to endure will be management guidance commentary as we gear up to kickoff the 1Q19 earnings season later this week. From a higher, macroeconomic level, we continue to look for progress on the U.S./China trade front as we believe positive developments on trade can result in an uptick in industrial activity as businesses will be able to assess the outlook of their respective industries with increased certainty.
Members interested in digging even deeper can view the official release, here.