New Orders for Durable Goods Rose 0.4% in October
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Implications: New orders for durable goods rose 0.4% in October, coming in better than consensus expected, but the internals of the report were not as good. The positive overall headline number was driven by a 3.4% increase in transportation equipment, specifically a 45% increase in orders for military aircraft. The transportation sector is very volatile from month to month. Taking out transportation, orders for durable goods were down 0.9% in October, the weakest monthly reading of the year, but nothing to fret about. Orders for durables are still up 5.5% from a year ago and up 6.4% excluding the transportation sector. Meanwhile, shipments of "core" capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – declined 0.4% in October. Still, these "core" shipments are up 7.5% versus a year ago. Expect a rebound in the coming months. Signaling future gains, unfilled orders for "core" capital goods rose 0.3% in October, hitting a new record high, and are up 9.8% from a year ago. We believe we are nearing a large increase in business investment over the next couple of years. Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in bigger ticket items. Meanwhile, profit margins are still high, corporate balance sheets are loaded with cash, and capacity utilization is near long-term norms, leaving more room (and need) for business investment. In other news, initial unemployment claims rose 21,000 last week to 313,000, an uptick from recent lows but seasonal factors look to be playing a role. Continuing claims dropped 17,000 to 2.32 million, the lowest level in nearly 14 years. As a result, our payroll models still suggest job growth of about 200,000 in November, if not higher.

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Posted on Wednesday, November 26, 2014 @ 10:27 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.