Tepid Demand for Durable Manufactured Goods

By February 25, 2010Economy

Today’s Commerce Department report falls short of expectations and does not fall into the “glimmers of hope” category that we’ve seen in some other economic reports in recent months.

The 3 percent gain in January orders was driven mainly by volatile civilian aircraft bookings, and as a result does not reflect an overall improvement for manufacturers of durable goods. Despite a 15.6 percent surge in transportation, orders in other sectors actually fell by 0.6 percent in January.

At the tail of end last year, there was a spike in orders, but that was likely due to an expiring pro-investment tax provision for accelerated depreciation of equipment. We saw a reversal in January, led by a 9.7 percent plunge in machinery orders.

The fact that unfilled orders — which are a better determinant of future activity –remained very week in January and actually declined outside of aircraft, signals that demand for durable manufactured products remains tepid.

Going forward, manufacturers will be challenged by weak demand for big-ticket items by businesses and consumers. Still, inventory restocking should be a temporary support for manufacturing output in the near term.

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