Durable Goods Orders Tumble, Skewed by Transportation

New orders for durable goods unexpectedly fell a seasonally adjusted 1.3% in March -- the forward-looking metric's first decline in four months -- the U.S. Commerce Department announced Friday.

However, excluding the often-volatile transportation component, the core rate actually rose 2.8% in March, which was the largest ex-transportation increase since the recession started in December 2007. The ex-transportation component rose 1.7% in February and fell 0.8% in January.

Economists surveyed by Bloomberg News had expected March durable goods orders to rise 0.4%, after 1.1% and 3.8% increases in February and January, respectively.

Strong Industrial Performance, Outside Transportation

The transportation component provided a dramatic drag on the top-line durable goods statistic, with transportation orders plunging 12.9% and non-defense aircraft and parts sinking 67.1%. Meanwhile, computer orders surged 12.9%, machinery orders jumped 8.6%, electrical equipment orders, including appliances, rose 4.9%, communications equipment increased 3.9%, primary metals were up 3.5%, electronics climbed 3.4%, and capital goods orders fell 7.0%.

Also in March, inventories rose 0.2%; shipments increased 1.2%; excluding transportation, shipments climbed 1.0%.

Durable goods orders are new orders by stores and businesses for immediate and future delivery of factory hard goods. The 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 orders usually indicate that businesses are experiencing sustainable growth or demand, which often translates into higher revenue and increased production by the manufacturing sector -- two bullish signs for the U.S. stock market.

The March data is a classic example of the complexity of the durable goods orders statistic. The top-line stat revealed an unexpected decline, but it was skewed lower by the often-volatile transportation component. Factor-out transportation, and durable goods rose an impressively, with strength across many manufacturing categories.

As a result, investors should interpret the March durable goods orders report as a positive for the U.S. economy. It provides additional evidence that the manufacturing recovery is continuing, with increasing demand -- another encouraging sign for economic expansion.