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US durable goods orders rise more quickly than expected in October

By Alexander Bueso

Date: Wednesday 27 Nov 2019

LONDON (ShareCast) - (Sharecast News) - Orders for goods made to last more than three years jumped past forecasts last month, amid strong demand for aircraft and a much stronger-than-expected reading for so-called core capital goods orders.
According to the Department of Commerce, US durable goods orders increased at a month-on-month pace of 0.6% in October to reach $248.7bn (consensus: -0.8%).

Excluding orders tied to the defence sector meanwhile, orders were up by 0.1% versus September (consensus: -0.3%), and without transportation they jumped by 0.6% (consensus: 0.1%).

The US automobile sector exerted the greatest drag, with orders of autos and parts shrinking at a month-on-month clip of 1.9%, which economists said was likely due to the strike at GM.

Rising orders for Boeing jets and a fourth consecutive double-digit increase in military aircraft orders more than offset the drop in auto and parts orders.

However, Ian Shepherdson at Pantheon Macroeconomics cautioned clients that: "The latter is very noisy and will soon mean-revert, likely pulling about 1% off headline orders."

On a more positive note, orders for core capital goods, which exclude those for aircraft and defence, jumped by 1.2% (consensus: -0.3%).

"These data are much stronger than implied by the ISM manufacturing orders index, which points clearly to a declining trend. The hard data are more volatile than the survey, so we have to expect a correction over the next couple of months," added Shepherdson.

"In the meantime, though, these data will lift Q4 GDP growth estimates, along with the better-than-expected trade data released yesterday. We expect the Atlanta Fed's GDPNow measure to jump to perhaps 1%, from the current 0.4%. It will be updated later today."

"Shipments of nondefense capital goods - a proxy for business equipment investment in GDP - jumped by 1.4% m/m in October (consensus: -0.2%), its first increase since June and the strongest gain since November 2018, putting it on track to increase by 4.4% q/q annualized in Q4 following the outsized 9.5% q/q annualized decline in Q3," chipped in Mickey Levy at Berenberg Capital Markets.

"Some of the October gain was driven by a 7.8% m/m increase in shipments of nondefense aircrafts and parts -- its strongest gain since November 2018 -- which has been weighed down by Boeing issues this year."

September's decline in total durable goods orders was revised down from a preliminary print of -1.1% on the month to -1.4%.