U.S. consumers wash, dry clothes - good news for the economy!
A good short hand for investors? "As washing machines and dryers go, so goes the U.S. economy."
With the above in mind, notch one modest, good news data point for the U.S. economy; durable goods unexpectedly rose 3.4% in February, the U.S. Commerce Department announced Wednesday, ending a six-month skid. However, the gain was somewhat offset by a revised decrease in durable goods orders for January to -7.3%, substantially worse than the previously released -4.5%.
Economists surveyed by Bloomberg News had expected February durable goods orders to fall 2.0%. Durable goods orders decreased 3.0% in December 2008 and 4.0% in November 2008.
Excluding transportation, durable goods orders rose 3.9% in February, after falling 2.5% in January. The ex-transportation statistic declined 5.5% in December 2008.
Not Much, but Investors Will Take It
Barclays' Senior Economist Julia Coronado said investors should not get giddy over the February durable goods upside surprise, but it is a mild positive for the U.S. economy. "We are still seeing contraction, but there's been a slowing in the pace of contraction," Julia Coronado told Bloomberg News Wednesday. "We have seen consumer spending stabilize and that means manufacturers will work off the inventories and slow down the pace of contraction in production."
Peter Kenny, managing director for Knight Equity Markets in New Jersey, agreed. "We've seen a variety of different data points that suggest that though we're not completely done with the deterioration in the overall economy, we're clearly seeing signs of a thaw," Kenny told Reuters Wednesday.
In February, capital goods orders surged 11 percent following a 5.4 percent decline in January. An increase in capital goods suggests businesses are increasing purchases that enhance productivity -- generally a positive sign for commercially activity. Machine orders rose 13.5 percent after dipping 2.0 percent in January. Transportation orders increased two percent, electronics rose 1.6 percent, fabricated metals increased 1.5 percent, and primary metals fell 0.6percent.
Meanwhile, inventories of durable goods fell 0.9 percent, after declining 0.8 percent in January. Shipments rose 0.6 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 -- demand -- 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: A mixed bag regarding durable goods orders: the February upside surprise will gladden investors, but keep in mind the report is subject to a revision, and January's revision to a large 7.3 percent decline cannot be ignored. Moreover, the durable goods three-month moving average remains negative. We need to see many consecutive months of durable goods orders increases before one can feel confident that demand has rebounded.
Further, while it is possible for the stock market to rally without better signs from the manufacturing sector, an enduring market rally cannot occur without a sustained expansion of the nation's productive capacity, including manufacturing.