Spring surprise: Durable goods orders unexpectedly rise in April

Perhaps the most recent durable goods order report represents another green shoot: durable goods orders unexpectedly rose 1.9 percent in April, the U.S. Commerce Department announced Thursday, aided by a rise in auto demand and defense spending.

Economists surveyed by Bloomberg News had expected April durable goods orders to remain flat. Another positive: excluding transportation, durable goods orders rose 0.8 percent in April.

However, there is a downside to the April report: March durable goods orders were revised to a large 2.1 percent decline from the previously-released 0.8 percent decline. Economists say the revision underscores the need for investors to not place too much emphasis on any one month's durable goods data, but to evaluate the longer-term trend.

Durable goods orders increased a 2.1 percent in February, after falling -7.3 percent in January, and have fallen in five of the last seven months.

A small improvement

Tim Quinlan, economist for Wachovia Corp. in Charlotte, Carolina, is in the camp that argues that a modest rise in durable goods orders is exactly what it implies – a small step up in a long journey.

"It's hard to identify what the source for a big, lasting turnaround would be," Quinlan told Bloomberg News Thursday. "I haven't seen anything that would suggest to me yet that businesses are ready to roll up their sleeves and start spending money."

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 indicate that businesses are experiencing demand -- which historically translates into higher corporate revenue 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 April upside surprise will be cheered by investors, but keep in mind the report is subject to a revision, and March's revision to a 2.1 percent decline can not be ignored. We need to see many consecutive months of durable goods orders increases before one can feel confident that demand has rebounded and that business investment is increasing in a sustained way.
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