January 28, 2016

Dec. Durable Goods Bloodbath: SA Orders Down 5.1 Pct., Shipments Down 2.2 Pct., Inventories UP 0.5 Pct.(!); How Close to Zero (Or Worse) Will 4Q15 GDP Go? (But See Updates)

Filed under: Economy,Taxes & Government — Tom @ 9:30 am

Today’s brutal durable goods report should have the GDP prognosticators busy at their keyboards figuring out how much they need to reduce their projections of both fourth quarter 2015 and first quarter 2016 growth. Given that most of the predictions are already between 0.1 percent and 1.0 percent, one has to wonder how close to a goose egg the government’s advance GDP percentage will be tomorrow — or if it might even go negative.

From the Census Bureau:

New orders for manufactured durable goods in December decreased $12.0 billion or 5.1 percent to $225.4 billion, the U.S. Census Bureau announced today. This decrease, down four of the last five months, followed a 0.5 percent November decrease. Excluding transportation, new orders decreased 1.2 percent. Excluding defense, new orders decreased 2.9 percent.

Shipments of manufactured durable goods in December, down two of the last three months, decreased $5.4 billion, or 2.2 percent, to $235.8 billion. This followed a 0.6 percent November increase.

Inventories of manufactured durable goods in December, up following five consecutive monthly decreases, increased $2.1 billion, or 0.5 percent, to $397.9 billion. This followed a 0.2 percent November decrease.

Predictions for orders were between -0.5 percent and -1.0 percent.

Making matters worse, November’s original values for new orders, shipments, and unfilled orders were all revised down, while inventories were revised up. Orders went from flat to -0.5 percent.

Year-over-year, December 2015 compared to December 2014 (not seasonally adjusted, pending future revisions to Dec. 2015) was just awful:

  • Orders — down 1.7 percent.
  • Shipments — down 3.3 percent.
  • Unfilled Orders — down 1.9 percent.
  • Inventories — down 0.1 percent.

Comparative annual totals were also unimpressive (pending future revisions to Dec. 2015):

  • Orders — Down 3.5 percent in 2015.
  • Shipments — Up 1.4 percent in 2015.

And remember, even if tomorrow’s GDP percentage comes in positive:

  • December’s figures are subject to revision, and the trend for them in recent months has been decidedly downward.
  • Revisions to December’s retail sales, international trade, and several other areas are also on the horizon.

The likelihood that final fourth-quarter GDP will be positive has gone down significantly.


UPDATE, 12:15 p.m.: Well, maybe not, but I don’t understand why.

The Atlanta Fed has increased its fourth-quarter 2015 prediction to an annualized 1.0 percent from 0.7 percent, citing “The forecast for fourth-quarter real residential investment growth, currently 3.4 percent, increased more than 4 percentage points after last Friday’s existing home sales report from the National Association of Realtors.”

Excuse me, but that’s bizarre. Existing home sales are asset swaps, which except for giving rise to relatively small (in the grand scheme of things) realtor commissions and fees to bankers and others, don’t produce value. We’ll have to see if the residential investment growth figure really goes that high (the Atlant Fed now expects 7 percent to 8 percent) in tomorrow’s advance report.

Also, the Atlanta Fed didn’t comment at all on the durable goods disaster, which affected both November and December. That’s also bizarre.

UPDATE 2, 12:30 p.m.: Meanwhile, Moody’s, whose estimate almost always trails the Atlanta Fed and is generally overoptimistic, is now carrying a lower prediction, with the usual Mark Zandi-inspired “nothing to see here, move along” qualifier —

Fourth quarter U.S. GDP growth appears to have fallen short of 1%, but we caution against reading too much into the weakness. Inventories will be a sizable drag on growth in the final three months of the year and while painful for GDP, it’s necessary. …

… We look for fourth quarter GDP growth of 0.8% at an annual rate, with inventories shaving 1.3 percentage point off growth. Therefore, real final sales should have risen 2.1% at an annual rate, nothing spectacular but far from raising any red flags about the health of the domestic economy.

For heaven’s sake, the need to pull back from unsustainable inventory build, which is not happening nearly as fast as it needs to in light of the consistent monthly orders and sales declines, is the flippin’ red flag. They need to come down a lot, and stay there until conditions on the ground generally improve.

UPDATE 3, 12:40 p.m.: Pending home sales only increased by 0.1 percent in December (vs. expectations of +0.8 percent), and November’s pullback went from -0.9 percent to -1.1 percent. That probably doesn’t affect fourth-quarter GDP reported tomorrow, but it may presage downward revisions by the time the government releases its third version in late March. It also doesn’t bode well for 1Q16.



  1. Bizarre? No, they are in full save Obama’s face mode because in liberal land the messenger is the message and the message is the messenger. If Obama is repudiated, then the liberal message is repudiated.

    The liberal message is redistribution of wealth, low GDP growth is the new normal.

    Comment by dscott — January 28, 2016 @ 4:11 pm

  2. [...] the detailed information in the durables good report demonstrates that. As I noted earlier today at my home blog: November’s original values for new orders, shipments, and unfilled orders were all revised [...]

    Pingback by BizzyBlog — January 28, 2016 @ 11:25 pm

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