Durable Goods Up

Orders for durable goods increased 1.9% in April, but the prior month's 0.8% decline was revised sharply lower to a 2.1% decline. Excluding transportation orders, durable goods orders increased 0.8% following the previous month's 2.7% decline, which was revised from -0.6%.

The revisions take the shine away from the data and put the level of new orders roughly equal to the consensus forecast for the headline reading and about a percentage point lower for the core reading, the ex-transportation reading. Nevertheless, the three-month trend is slightly up for all orders and only slightly down for core orders, a big shift from previous months, as evidenced by the 26.6% and 25.2% year-over-year declines, respectively.

Orders for non-defense capital goods orders, which are a key gauge of capital spending, fell 1.5% in April following a 1.4% decline in March. Shipments of these goods, which are used as source data for GDP, fell 2.1% following a drop of 1.7%. The current level is about 12% below the first quarter's average, indicating another decline in capital spending for the current quarter; this would mark the sixth quarter in a row. It is worth noting, however, that the past two quarters saw declines of 33.8% and 28.1% respectively, indicating that the rate of decline in capital spending is slowing.

No significant increase in capex is likely soon, because companies have ample spare capacity. Capital deepening will occur mostly in cases where strong companies seek to boost market share or where investments will help lower costs and raise productivity. No new productive capacity is needed relative to current levels of demand.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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