Durable Goods Orders Tumbled in September, Weighed Down by Autos and Planes

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    The Census Bureau said that new orders for durable goods, those expected to last three or more years, declined by a seasonally adjusted 0.4 percent in September compared with August. This was the first decline in the headline figure in four months.

    That was better than the 0.9 percent decline economists expected. But it's important to remember that the durable goods figures are nominal, meaning not adjusted for inflation. Growth in orders only indicates an expansion of output if it exceeds the growth in prices. Prices of durable goods rose 0.4 percent in September, according to the Department of Labor's Consumer Price Index. So the real contraction may be twice as large as the reported decline.

    Much of the decline was due to a fall in orders for autos and airplanes. Orders for motor vehicles fell 2.9 percent after declining 3.9 percent in August. Automakers have had to slow production due to a shortage of semiconductors. Prices for new cars and trucks rose 1.3 percent in September and 1.2 percent in August, according to CPI.

    Orders for non-defense aircraft, an extremely volatile category that soars and sinks based on large fleet orders, fell 27.9 percent in September after rising 63.9 percent in August and falling 36.3 percent in July. Aircraft prices were flat in September, after rising 0.3 in August and 0.2 in July.

    Excluding transportation, new orders for durable goods rose 0.4 percent.

    Orders for “core” durable goods-a category that excludes defense and aircraft, and is considered a proxy for business investment–were up 0.8 percent in September after a 0.5 percent gain in the prior month. Prices for capital equipment, measured by the Producer Price Index, rose a seasonally adjusted 0.6 percent, suggesting that a good part of the gain in September may simply reflect higher prices.

    Orders for computers and related equipment fell 0.4 percent. Orders for communications equipment fell two percent. Orders for appliances and electrical equipment fell 0.5 percent. Prices were up for each of those categories, indicating that the real declines were larger.

    Orders for machinery, primary metals, and fabricated metal products all rose for the month. But since materials prices have risen rapidly–steel mill product prices were up five percent in September and machinery prices rose 0.9 percent –this may also be mostly driven by inflation.

    Shipments of durable goods rose 0.4 percent after a 0.5 percent drop in the prior month. Adjusted for inflation, this is likely a contraction in shipments, highlighting the weight of supply-chain constraints on the economy.

    Inventories of durable goods rose 0.9 percent, matching the gain in the prior month. That likely reflects businesses stocking up on goods anticipating further shortages going into the holidays.

    Unfilled orders for manufactured durable goods in September, up eight consecutive months, rose 0.7 percent to $1,247.1 billion. This followed a 0.9 percent August increase. Transportation equipment, up seven of the last eight months, led the increase climbing 0.6 percent to $825.0 billion.

    For the first time, the government also released its preliminary estimates of shipments and inventory for all manufactured goods on the same day as the durable goods orders. This includes nondurables but does not break them out separately. Shipments of the all-inclusive category rose 0.6 percent and inventories rose 0.8 percent.

    The weakness in orders appears to be largely due to supply constraints, which may persist for months to come. President Joe Biden's efforts to relieve port congestion have so far been ineffective. And that weakness is partially concealed by growth in some categories hit by big price hikes. Adjusted for inflation, the durable goods weakness in September was worse than headlines make it appear.

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