Details are important
We can never gain useful information from an economic statistic unless we’re aware of the details of what is being measured. 2% this and 1% that isn’t useful unless we grasp the nitty gritty of what is being measured and how.
We have the US durables numbers for December and on the face of it they look good. Durables being a useful sign of people think about the future they being, well, durable, you know? So, people only order if they think that good times are going to last. A 2.4% rise is a good number here.
Except those details. We oft to normally try to strip transportation out of these numbers. That’s too dominated by aircraft sales to be telling us something useful about sentiment across the economy. One big air show with announcements of big orders can completely dominate the segment.
So, we often to that near always like to look at the durables minus transportation sector. For we’re interested in two things here. Yes, sure, what’s the actual number of stuff that was ordered, that’s interesting. But we’re also – rather more in fact – looking for a guide to general sentiment. This is better seen by stripping out the known to be highly variable parts of our numbers. In the same way that we look at inflation and then core inflation – core there meaning minus food and energy.
December’s durables numbers look good on the face of it but once we strip out transportation, it’s really just a rather drear nothingburger.
We have those December durables numbers:
New orders for manufactured durable goods in December increased $5.7 billion or 2.4 percent to $245.5 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 3.1 percent November decrease.
That looks pretty good, so Hurrah! Except it’s not actually that good once we strip out that really volatile transport sector:
Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders decreased 2.5 percent. Transportation equipment, up following three consecutive monthly decreases, drove the increase, $5.9 billion or 7.6 percent to $82.9 billion.
(US durables from Census Bureau)
The transportation problem
Given that Boeing hasn’t been able to ship any 737 Max planes we’d think it a bit odd if civilian transportation durables were rising. And when we look at the transportation sector things are indeed down:
Transportation equipment orders increased 7.6% in December after declining 8.3%. Within transportation, the standout was defense aircraft and parts, as orders jumped 168.3% in December, more than reversing the 69.1% decline in November. Nondefense aircraft and parts orders were down 74.7% in December, consistent with the weakness in Boeing orders.
That the Pentagon has just placed one or more of their typically lumpy orders doesn’t tell us all that much about the general tenor of the US economy. That being what we’re really looking to this statistic for.
Given those Boeing problems what we’re really looking at is the non-transportation number which is that minus 0.1% at the top. Which isn’t terrible, durables is a volatile component of GDP. It’s just not as nice as the headline reported 2.4% rise.
I’d not take this as being a number telling us the economy is accelerating or anything like that. Rather, within the bounds of the normal statistical variability, we’re bumbling along roughly as we have been. Nothing here to make me think that there’s either a slowdown in the general economy or a speed up.
The investor view
Don’t get excited by the pleasing headline number. The inherent variability of that transportation sector means that it’s the core number that matters to us. GDP is, as far as this informs us at least, still bumbling along at that around 2% growth rate which is potential.
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