Significant Strength For February's Durable Goods Report

Significant strength is the verdict for February's durable goods orders and with it, significant strength is now the tangible outlook for this year's factory sector. Durable goods orders jumped 3.1 percent in February to just top Econoday's high estimate with ex-transportation orders, at a gain of 1.2 percent, very near the high estimate. The most convincing strength in the report comes from core capital goods (nondefense ex-aircraft) where orders surged 1.8 percent, which is well beyond the high estimate, with related shipments jumping 1.4 percent in what will give a major boost to business investment in the first-quarter GDP report.

Total shipments rose a very sharp 0.9 percent with ex-transportation shipments up 1.0 percent. Unfilled orders, which have been weak, showed improvement with a 0.2 percent gain. Turning to inventories, they rose a healthy 0.4 percent but, relative to shipments, need to be refilled as the inventory-to-shipments ratio fell one notch to 1.64. The dip in this reading points to the need for restocking which will be a special plus for factory payrolls.

Looking at product groups, orders for primary metals, which are now in special focus given the prospect of trade tariffs, surged 2.7 percent in the month in a gain that may reflect, based on anecdotal reports, rising prices for steel and aluminum. Fabrication orders rose 0.8 percent in the month with machinery, which is at the heart of the capital-goods group, rising 1.6 percent. Civilian aircraft orders, which are typically volatile month-to-month, supported February's results, up 25.5 percent, with motor vehicles also showing unusual strength at 1.6 percent.

Year-on-year rates of growth are moving from the mid-single digits to the high single digits led by 8.9 percent overall with ex-transportation up 8.1 percent and capital goods up 8.0 percent. Today's report helps confirm the enormous strength that has been posted over the last year by regional and private factory surveys and points to a sector that will increasingly contribute to employment growth and to GDP growth.