Implications: Durable goods declined for the second straight month in October, but, once again, it was due to the transportation sector, which is extremely volatile from month to month. The recent drops in transportation orders are very likely to reverse November as Boeing has received massive commitments so far this month. Durables excluding transportation were up 0.7% in October and are up a very robust 11.7% versus a year ago. Shipments of "core" capital goods, which exclude defense and aircraft, were down 1.1% in October, but we think this decline should be taken with a very large grain of salt. Since early 2010, these orders are down in the first month of every quarter 75% of the time, and the two exceptions have been very small gains. Meanwhile, in the second two months of every quarter, these shipments are up about 85% of the time. In other words, we think core shipments of capital goods are likely to rebound in November/December. Core shipments remain up 8.4% versus a year ago, no different than last month. In addition, unfilled orders for core capital goods hit a new all-time record high in October, fully recovered from the recession. Corporate profits and cash on the balance sheets of non-financial companies are both at record highs. As a result, the odds are stacked in favor of a substantial increase in business investment over the next few years.
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Posted on Wednesday, November 23, 2011 @ 11:04 AM