January durable goods orders nosedive, the largest fall since October

The outlook for capacity utilization of the nation's manufacturing sector remains poor. U.S. durable goods orders plunged 5.2% in January, the U.S. Commerce Department announced Thursday.

Just as significant, durable goods orders have now fallen for six straight months -- the longest negative streak since record-keeping started for the stat in 1992. January's 5.2% decline was the largest since the 8.5% swoon in October 2008.

Economists surveyed by Bloomberg News had expected January durable goods orders to fall 2.5%. Durable goods orders decreased 3% in December 2008 and 4% n November 2008.

Widespread declines

Excluding transportation, durable goods orders fell 2.5% in January. The ex-transportation statistic declined 5.5% in December 2008.

In January, orders fell in every category. Capital goods orders fell 5.4% following a 5.8% drop in December 2008. Defense goods fell 35.3%, motor vehicles declined 6.4%, electronics declined 5%, primary metals declined 4.6%, machinery dipped 2%, and fabricated metals dropped 1.1%.

Meanwhile, inventories of durable goods fell 0.8% -- the biggest inventory decline in more than five years.

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 -- demand -- which usually translates into higher revenue for them and increased production in the manufacturing sector -- two bullish signs for U.S. stock market.

Economic Analysis: This is yet another difficult statistic from manufacturing. Further, investors should keep the anchoring words of the late, great Oppenheimer Chief Investment Strategist Michael Metz close by: "Friends, it is called the Dow Jones Industrial Average, not the Information Technology Average," Metz said often. It's possible for the stock market to rally without better signs from the manufacturing sector, but an enduring market rally cannot occur without a sustained expansion of the nation's productive capacity, including manufacturing. Or, in short, "As industry goes, so goes the United States and the stock market."

Bottom Line: Consumers, understandably, have scaled-back big-ticket purchases -- something we see during recessions -- and this is reflected in the durables goods order decline. Consumers don't want to purchase items that they might have trouble paying for and/or will have to take on extra debt for during a period of economic uncertainty and/or possible workforce downsizing. Hence, so long as job market news remains negative, don't look for an uptrend in big ticket purchases and durable goods orders.

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