Excluding Transportation, Orders for Durable Goods Fall

Investors received another sign Wednesday that the U.S. economic expansion has slowed, as durable goods orders excluding transportation orders fell 0.8% in September, according to the U.S. Commerce Department.

Overall, durable goods orders rose 3.3% in September, but the gain in the top-line statistic does not tell the whole story. Most of the gain occurred in the volatile transportation component, up 15.7%. That category was propelled higher by a surge in activity at commercial aviation giant Boeing (BA), where orders skyrocketed 117% in September, after a 10% gain in August.

Analysts surveyed by Bloomberg had expected September durable goods orders to rise 1.6% following a revised 1.0% decline in August, less than the initially-estimated 1.5% decline, and a 1.2% gain in July.

Economists tend to emphasize the ex-transportation durable goods orders component since it provides a more accurate read on the nation's industrial core. The ex-transportation component rose 1.9% in August and declined 2.1% in July.

Also, in September shipments fell 0.4%, after falling 1.4% in August and rising 2.5% in July.

Overall, a Sub-Par Industrial Report

In September, transportation orders jumped 15.7%, including a 105% surge in aircraft orders and a 30% rise in defense transportation orders. Elsewhere, capital goods orders increased 8.6%, manufacturing orders rose 4.6%, machinery increased 2.0%, and appliance orders rose 0.4%. However, fabricated metals fell 1.6%, computers/electronic products declined 4.0%, and other durable goods orders decreased 0.1%.

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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. economy.

September's durable goods order presents decidedly mixed results.

On the one hand, there was some strength in capital goods and manufacturing orders, and if that trend continues, that would bode well for the U.S. economy. On the other hand, there was weakness in fabricated metals, computers/electronic products, and appliances; further, the large rise in aircraft transportation orders clearly is not sustainable.

The combination points to an unsettled U.S. manufacturing picture. Business investment has slowed and transportation orders have been able to offset some of that slowdown, but not nearly all of it. If that pattern continues, it would further support the U.S Federal Reserve's view that the U.S. economy is operating well below capacity, and may need additional stimulus.