Durable Goods Better Than Expected - Real Time Insight

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The December Durable Goods Orders report came in better than expected, highlighting that corporate capital expenditures will remain a growth driver for the economy despite the expiration of accelerated depreciation expense.

Headline Durable Goods Orders increased 3% in December, above the 2% consensus expectation, while the November headline gain of 3.9% was revised upwards to 4.3%. The 'core' Durable Goods Orders reading, which strips out defense and aircraft orders given their inherent 'lumpiness' on a month-to-month basis, also came in better than expected at a gain of 2.1%. This compares to the weak 'core' reading in November of a 1.2% drop.

This report tracks orders placed with domestic manufacturers of hard goods for immediate or future delivery, which gives us a good sense for how busy factories will be to fill these orders. Not only does the report give us insight into the demand for consumer durable goods like refrigerators and cars, but also equipment for business such as machinery and computers. Growing capital expenditures by businesses show their confidence in their business prospects as well as the outlook for the broader economy.

The annualized growth pace of capital spending in tomorrow's fourth quarter GDP report will show a deceleration from the third quarter's torrid pace. This is primarily a function of the expiration of accelerated depreciation expense. The expectation is that this key growth driver will get back to its solid recent trend line in the following quarters. This morning's blow-out Caterpillar ( CAT ) report confirms that demand for the country's industrial operators remains strong.


 
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