Reem Nasr
Although durable goods orders continued to fall in January, the underlying details were promising and may point to a temporary slump due to extreme winter weather.
New orders dipped a modest 1.0 percent last month, the Commerce Department said today. But most of the weakness came from a 5.6 percent drop in transportation as aircraft sales sank 20 percent.
But looking more closely at Thursday’s data revealed that orders for long-lasting U.S. manufactured goods, excluding transportation, actually increased 1.1 percent. And this suggests that nasty weather is the reason for January’s overall decline.
Sarah Watt House, an economist at Wells Fargo, said that January’s report was better than expected but still weak. And she blamed the heavy snowfall for slowing shipments as well as the auto sector.
“It causes a backup in the pipeline because people can’t get out to test drive cars. So we’re seeing auto sales down for a second month in a row. And that invariably affects durable goods orders.”
She added that wintry weather might continue to impact durable goods until about April, when the sector should pick up.
“Only then will we be able to see exactly what role weather played and what the overall momentum for 2014 will be.”
Durable goods orders have fallen in three of the last four months and follow a 5.3 December decrease. The decline may be due to retailers having higher inventories as auto sales have slowed over the past few months.
Boeing reported orders for only 38 aircraft in January, compared to 319 the previous month. But economists are not worried since transportation, and especially aircraft, tends to provide the most volatile numbers in the durable goods report.
But beyond the transportation sector, the 1.1 percent increase partially offset last month’s decline. The increase was largely fueled by computers, electronic products and fabricated metals.
At the National Association of Manufacturers, chief economist Chad Moutray said that journalists shouldn’t be quick to write off January as a dismal month for durable goods.
“Excluding transportation, we get a better sense of what’s happening in broader manufacturing. And I’m cautiously optimistic about the rest of 2014.”
Moutray noted that manufacturing is the largest multiplier in the economy, so January’s increase could have potential spillover effects if continued over the coming months.
He added that a weak consumer spending report does not necessarily spell bad news for manufacturing.
“Often people react to the news that the economy is weak but when the next iPhone comes out, they are going to go out and buy it.”
Moutray expects a better year for the economy but not a great one. He is hopeful that production, orders and shipments will gain traction, especially as the weather warms.