Durable Goods: Seen and Unseen (the Good, the Bad, the Ugly)

Inquiring minds are digging into the latest Durable Goods Report by the Census Bureau.

New orders for manufactured durable goods in June increased $9.9 billion or 4.2 percent to $244.5 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 5.2 percent May increase and was at the highest level since the series was first published on a NAICS basis in 1992. Excluding transportation, new orders increased slightly. Excluding defense, new orders increased 3.0 percent. Transportation equipment, also up four of the last five months, led the increase, $9.9 billion or 12.8 percent to $87.1 billion. This was led by nondefense aircraft and parts, which increased $6.5 billion.

Durable Goods Seasonally Adjusted

Durable Goods	Seasonally Adjusted
	Monthly			Percent Change
	June 2013	May 2013	April 2013	May-June	April-May	March-April
Total:
Shipments…………	229,757	229,773	226,915	0.0	1.3	-0.6
New Orders…………	244,494	234,581	223,003	4.2	5.2	3.6
Excluding transportation:
Shipments…………	160,646	160,465	160,211	0.1	0.2	-0.4
New Orders……………	157,420	157,369	155,774	0.0	1.0	1.8
Excluding defense:
Shipments………	217,464	217,701	215,110	-0.1	1.2	-0.3
New Orders………………	230,302	223,629	213,124	3.0	4.9	2.6
Manufacturing with unfilled orders:
Shipments……	161,645	161,836	158,586	-0.1	2.0	-0.9
New Orders………	183,051	173,160	161,842	5.7	7.0	4.8
Primary metals:
Shipments…………	24,915	24,379	24,698	2.2	-1.3	0.6
New Orders………	25,405	25,466	25,307	-0.2	0.6	2.3
Fabricated metal products:
Shipments………	28,943	29,009	29,090	-0.2	-0.3	2.2
New Orders……	29,617	29,593	29,712	0.1	-0.4	1.2
Machinery:
Shipments…………	34,217	34,624	34,255	-1.2	1.1	-2.3
New Orders………	35,392	34,572	34,396	2.4	0.5	1.2
Computers and electronic products:
Shipments………	27,471	27,259	27,569	0.8	-1.1	-3.1
New Orders………	21,661	22,239	21,541	-2.6	3.2	4.6
Computers and related products:
Shipments………	2,283	2,307	2,336	-1.0	-1.2	-5.9
New Orders…………	2,265	2,313	2,362	-2.1	-2.1	-3.7
Communications equipment:
Shipments……………	4,049	4,117	3,960	-1.7	4.0	0.6
New Orders…………	4,620	5,233	4,543	-11.7	15.2	11.9
Electrical equipment, appliances, components
Shipments…………	10,300	10,405	10,195	-1.0	2.1	-0.8
New Orders…………	10,519	10,712	10,358	-1.8	3.4	0.1
Transportation equipment:
Shipments…………	69,111	69,308	66,704	-0.3	3.9	-1.0
New Orders…………	87,074	77,212	67,229	12.8	14.8	8.0
Motor vehicles and parts:
Shipments…………	45,161	44,564	45,158	1.3	-1.3	2.3
New Orders………	45,340	44,758	45,127	1.3	-0.8	2.3
Nondefense aircraft and parts:
Shipments………	11,840	12,637	9,709	-6.3	30.2	-10.0
New Orders………	27,267	20,750	12,346	31.4	68.1	18.4
Defense aircraft and parts:
Shipments………	4,627	4,669	4,618	-0.9	1.1	-9.5
New Orders………	5,107	4,303	4,106	18.7	4.8	42.8
All other durable goods:
Shipments………	34,800	34,789	34,404	0.0	1.1	0.8
New Orders………	34,826	34,787	34,460	0.1	0.9	1.3
Capital goods:
Shipments…………	84,187	85,510	80,950	-1.5	5.6	-3.8
New Orders………	103,596	95,064	83,807	9.0	13.4	5.4
Nondefense capital goods:
Shipments………	74,253	75,770	71,394	-2.0	6.1	-3.5
New Orders………	91,601	86,190	76,374	6.3	12.9	3.5
Excluding aircraft:
Shipments………	65,822	66,399	65,164	-0.9	1.9	-2.1
New Orders……	69,526	69,013	67,531	0.7	2.2	1.2
Defense capital goods:
Shipments………	9,934	9,740	9,556	2.0	1.9	-5.7
New Orders………	11,995	8,874	7,433	35.2	19.4	29.9

Easily Seen 

Note how orders for aircraft can skew the overall numbers. A closer look at the "New Orders" components will show precisely what I mean.

New Orders

• Total +4.2%
• Excluding Transportation +0.0%
• Primary Metals -0.2%
• Fabricated Metals +0.1%
• Machinery +2.4%
• Computers and Electronic Products -2.6%
• Computers Related Products -2.1%
• Communications Equipment -11.7%
• Electrical Equipment -1.8%
• Transportation Equipment +12.8%
• Motor Vehicles and Parts +1.3%
• Non-Defense Aircraft and Parts +31.4%
• Defense Aircraft and Parts  +18.7%
• Other Durable Goods +0.1%

One quick glance at new orders will give you the "easily seen" look at the durable goods numbers. Although such analysis is "easily seen" not many bother. Instead, many rely on the baseline reported number.

But what about the "not-so" easily seen? I am talking about constant revisions and the overall use of the report in general.

Revisions

Alan Hartley of Black Cypress Capital says Beware Revisions.

Today the U.S. Department of Commerce reported new orders for manufactured durable goods. One data point often analyzed by investors within the report is “non-defense capital goods ex aircraft”. This is considered a good proxy for business capital spending in the U.S.

That is all well and good, but we find the data less useful than most.

Why? Heavy revisions.

Take June 2012 for instance.

When non-defense capital goods ex aircraft (non-seasonally-adjusted) was originally reported in 2012, it was $67,693. The following month it was revised to $66,452. It was then revised to $64,906. Today June 2012 was revised yet again to $68,555. Over the course of the year, June 2012 looked as though it had fallen nearly 5% from June 2011, only to be revised today to show an actual gain of 0.5%.

History of Non-Defense Capital Goods Ex-Aircraft Revisions 

Here is the telling chart that  Hartley put together.



Core Durable Goods

"Core Durable Goods" are the "total durable goods orders excluding transportation equipment. The new orders numbers are closely followed by market participants as they provide indications on current economic conditions as well as future production commitments in the manufacturing sector."

Today we see Durable Goods Excluding Transportation is +0.0%. If June 2012 is any guide, the number may be off by 5% in either direction.

Of what use is that?

And the reported baseline number of +4.2% is even more useless. Non-defense aircraft orders are up a whopping 31.4% on the strength of 287 new orders for Boeing aircraft.

Such orders are extremely volatile, and cancelable.

The Good, The Bad, The Ugly

• The Good: The basline number was up 
• The Bad: The overall core number was flat; Numerous core numbers were negative 
• The Ugly: Over the course of the next year (or longer), the census bureau is likely to significantly revise all of the numbers in multiple directions, multiple times.

The bad and the ugly clearly outweigh any good in this report. So don't take today's surprisingly good number seriously.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com