Excluding Aircraft, Durable Goods Orders Unchanged

Aircraft often skews the durable goods report and March is a fine example. New orders for civilian aircraft have been very strong and were once again so in March, at a monthly 44.5 percent gain on top of February's 39.1 percent surge. These gains are what's behind the strong overall headlines of the past two reports, at 2.6 percent in March and an upwardly revised 3.5 percent in February.

Excluding transportation equipment, however, durable goods orders came in unchanged which is sizably below Econoday's consensus for a 0.5 percent gain. Note that vehicle orders, which like aircraft are part of the transportation group, were flat and not a factor in the month.

What is a key factor in the month is weakness in machinery which is at the heart of the capital goods sector and where new orders fell 1.7 percent. Orders for computers were also down while orders for electrical equipment were flat. These are all inputs into the core capital goods group where orders slipped 0.1 percent, again well under expectations for a 0.6 percent rise. Shipments for this reading, which are an input into GDP business investment, fell 0.1 percent with shipments in the prior month revised down 5 tenths to a 0.9 percent gain. These latter results will lower estimates a bit for tomorrow's GDP report.

Tariffs on steel and aluminum, which took effect late in the reporting month, didn't affect March's data. New orders for primary metals were strong, at 1.3 percent, but under February's unusual jump of 4.3 percent. Inventories of primary metals show no special sign of stockpiling, rising 0.5 percent following builds of 0.4 and 0.6 percent in the prior two months.

There's weakness below the headline in this report but the pace for the factory sector is still solid. Year-on-year order rates are still in the mid-to-high single digits for a sector that looks to contribute strongly to the 2018 economy.