Worst factory order decline since 1945
Apr 24th 2009 10:30AM
Updated Dec 4th 2009 11:56AM
The nation's factories remain in a pronounced funk. Orders for durable goods declined 0.8 percent in March, with new orders falling in almost every industrial sector, the U.S. Commerce Department announced Friday.
Durable goods orders have now declined in seven of the past eight months. What's more, manufacturing output has now fallen in this recession by the most in percentage terms since 1945, when the United States demobilized after World War II.
Economists surveyed by Bloomberg News had expected March durable goods orders to fall 1.8 percent. Durable goods orders increased a revised 2.1 percent in February, after falling 7.3 percent in January; they also fell 3.0 percent in December 2008 and 4.0 percent in November 2008.
Excluding transportation, durable goods orders fell 0.6 percent after rising 3.9 percent in February. The ex-transportation statistic declined 2.5 in January and 5.5 percent in December 2008.
Trying to see bright side
Credit Suisse Economist Jonathan Brasile tried to sound optimist in light of past manufacturing data.
"We are no longer in free fall,"' Jonathan Brasile told Bloomberg News Friday. "There are signs of stabilization. I'd look for a gradual recovery in orders."
In March, new orders decline in almost every industrial category, and in Q1 declined 27.1 percent compared to the same period a year ago. Meanwhile, ships fell 7.1 in March and fell 18.4 in Q1 compared to a year ago.
One bright spot, inventories declined 1.1 percent -- a sign that manufacturers are getting supply back in balance with demand.
In March, transportation goods fell 1.4 percent, core capital goods declined 1.4 percent, machinery declined 0.1 percent, fabricated metals fell 1.3 percent, primary metals dropped 3.2 percent, electronics declined 0.1 percent, and non-defense capital equipment excluding aircraft rose 1.5 percent.
Durable goods orders are new orders by stores and businesses for immediate and future delivery of factory hard goods. These orders measure how busy factories are likely to be in the immediate months ahead for such items as refrigerators, washers and dryers, cars, computers, and industrial machinery.
Investors should follow the statistic because rising durable goods orders usually indicates that businesses are experiencing sustainable growth, which usually translates into higher revenue from them and increased production by the manufacturing sector -- two bullish signs for the U.S. stock market.
Economic Analysis: The March durable goods orders decline was less than economists expected, but the overriding theme is the ongoing contraction in manufacturing. Demand for U.S.-made durable goods declined for the seventh time in eight months – a long, protracted contraction that's the worst since 1945 -- and that's the figure investors should focus on. It appears the sector's weakness may be moderating, but that does not blot out the damage: the nation has registered an enormous contraction in industrial capacity, and it's still contracting. That contraction must reverse for sustainable U.S. GDP growth to occur.