Durable goods orders fall unexpectedly
The consensus of economists surveyed by Bloomberg News had been for October durable goods orders to rise 0.5%. Durable goods orders increased a revised 2.0% in September, after falling 2.7% in August. Excluding transportation, durable goods orders fell 1.3% after rising 1.2% in September.
In October, machinery orders plunged 8.0%; defense aircraft and parts plunged 6.5%; capital goods declined 2.0%; computers decreased 2.1%; communications equipment declined 0.2%; and motor vehicle parts fell 0.1%. Primary metals orders rose 3.6% and transportation equipment increased 1.5%.
The Commerce Department also announced Wednesday that real personal income rose 0.2% in October, while real consumer spending increased 0.4%. Also, the U.S. savings rate dipped to 4.4% from 4.6% in September, but it's still at a level that indicates consumer belt-tightening.
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 follow the statistic because rising durable goods orders usually indicates that businesses are experiencing sustainable growth -- demand -- which usually translates into higher revenue and increased production by the manufacturing sector -- two bullish signs for the U.S. stock market.
Although the October durable goods stat was skewed lower by the plunge in defense orders, the report nevertheless is a setback, and that makes it two down months in the last three. Should durable goods orders continue to decline, it would renew concern about a lack of demand in the economy. The 1.3% excluding-transportation order decline in October also is a concern. The U.S. must register continual increases in durable goods orders for a sustained economic recovery to occur. Until the nation is experiencing consecutive quarters of durable goods orders increases, one can't feel confident that demand has rebounded.