Stronger U.S. Durables Orders Point to Solid Business Spending

Orders for U.S. durable goods surged in January by the most in six months, fueled in part by equipment demand that points to another strong quarter for business investment.

Bookings for durable goods -- or items meant to last at least three years -- increased 3.4% from the prior month after an upwardly revised 1.2% gain in December, Commerce Department figures showed Thursday.

Core capital goods orders, a category that excludes aircraft and military hardware and is seen as a barometer of business investment, rose 0.5% after an upwardly revised 1.5% gain. Shipments of such goods jumped by the most in three months.

Stronger U.S. Durables Orders Point to Solid Business Spending

Total factory production is approaching pre-pandemic levels and the value of core business goods orders is well above where it was a year ago. They rose to a fresh record high last month, helped by more bookings for computers and electrical equipment.

Shipments of non-defense capital goods minus aircraft, a figure used to calculate investment in the government’s gross domestic product report, jumped 2.1% in January. Some economists, including those at JPMorgan Chase & Co., indicated first-quarter business spending may be stronger than expected following the advance.

“The January durable goods report, packed with upside surprises, signals manufacturing and equipment spending are off to a strong start to 2021, and indicates that it is not just the consumer propelling a pickup in growth,” Wells Fargo & Co. economists Tim Quinlan and Sarah House said in a note.

Stronger U.S. Durables Orders Point to Solid Business Spending

A separate Commerce Department report Thursday showed GDP rose at an annualized pace of 4.1% in the final three months of the year, supported by a 25.7% annualized surge in equipment investment.

Looking ahead, fiscal relief paired with more widespread vaccinations and prospects of infrastructure spending should support business investment, while shoring up finances of the unemployed.

There are some signs the damaged labor market is improving slightly. According to a Labor Department report on Thursday, applications for state jobless benefits fell to the lowest level since November as coronavirus infection rates fell and more people received vaccinations. The data may have also been influenced by the Presidents’ Day holiday.

A host of data ranging from housing to manufacturing to retail sales point to firmer economic growth at the start of 2021. Reports out earlier this month showed retail sales exceeded economists’ estimates and manufacturing production rose for a fourth-straight month.

The jump in overall durables orders reflected huge increases for aircraft and defense hardware. Excluding defense, bookings rose 2.3% in January.

U.S. planemaker Boeing Co. reported 4 orders in January, following 90 in December. While not directly comparable on a month-to-month basis, the jump in Boeing’s orders at the end of 2020 helps explain the almost 390% surge in bookings for commercial aircraft.

Rebuilding diminished inventories has also been a key tailwind for factories. The value of durable goods inventories shrank 0.3%, after falling 0.2% in December.

Digging Deeper

  • Excluding transportation, durable goods orders rose a more moderate 1.4% after a 1.7% December gain
  • Orders for computers and related products climbed 8.7% in January, while bookings for electrical equipment and appliances rose 4.2%
  • The median estimate in a Bloomberg survey of economists called for a 1.1% increase in total durables orders. The median forecast for core capital goods called for a 0.8% gain after a previously reported 0.7% December increase.

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