U.S. New Orders for Durable Goods Jump in December

• US new orders for durable goods jumped by 4.6% in December 2012, which was above market expectations for a 2.0% increase and followed a revised 0.7% (was 0.8%) gain in November.
• Much of the overall gain resulted from a jump in defence aircraft orders; however, excluding the transportation component, orders still climbed by 1.3%, which was above market expectations for a 0.8% gain.
• Orders of non-defence capital equipment excluding aircraft, which is a commonly used proxy for future business investment, inched up by 0.2% although this followed an upwardly revised 3.0% (was 2.6%) gain in November. The corresponding shipments measure, which directly enters the Bureau of Economic Analysis’ (BEA) current quarter GDP estimate, climbed by a similarly modest 0.3% following an upwardly revised 2.2% (was 2.0%) November gain.
• A third consecutive monthly rise in shipments of non-defence capital goods ex-aircraft in December left the key measure up 5.2% (at an annualized rate) in the fourth quarter of 2012. That more than retraced a 4.8% drop in the third quarter and remains consistent with our most recent monitoring for business equipment and software investment to rise at a respectable 9% rate in the fourth quarter of 2012 following a 2.6% third-quarter decline. This strengthening will not likely be enough to prevent a significant slowing in overall GDP growth in the fourth quarter of 2012 to around 1.2% from the 3.1% jump in the third quarter as outsized support from both inventories and government defence spending in the third quarter of 2012 are unlikely to be repeated; however, even stronger orders growth in the fourth quarter of 2012 provides reason for optimism that recent improvements in business investment will be sustained despite some ongoing fiscal uncertainty surrounding the current debt ceiling and budget negotiations. Along with the respectable performance of labour markets in recent months, this bodes well for overall GDP growth to improve early in 2013 despite some near-term fiscal drag.

New orders for durable goods jumped by a stronger than expected 4.6% in December 2012 following 0.7% (previously reported as 0.8%) and 1.1% gains in November and October, respectively. Most of the December increase reflected an outsized 67.6% jump in defines orders, which were led by a 56.4% rise in defence aircraft orders.

Along with a 0.4% rise in motor vehicle orders, this pushed the overall transportation component up by 11.9% in the month; however, excluding the transportation component, orders still rose 1.3%, thereby reflecting relatively broadly based gains.

Orders of non-defence capital goods excluding aircraft, a commonly used leading indicator of future business capital investment, inched up by a modest 0.2%; however, this followed an upwardly revised 3.0% (was 2.6%) gain in November that matched the solid 3.0% gain in October. This left the measure up an annualized 21.3% in the fourth quarter of 2012 as a whole and marked the strongest quarterly gain since the second quarter of 2010.

Shipments of durable goods rose by 1.3% in December and built on a revised 1.8% (was 1.6%) gain in November. Shipments of non-defence capital goods excluding aircraft, which enters directly into the BEA’s quarterly estimate of business capital spending, inched up by just 0.3%; however, this followed a sizeable 2.2% (revised from 2.0%) gain in November and a 0.4% increase in October.

A third consecutive monthly rise in shipments of non-defence capital goods ex-aircraft in December left the key measure up 5.2% (at an annualized rate) in the fourth quarter of 2012. That more than retraced a 4.8% drop in the third quarter and remains consistent with our most recent monitoring for business equipment and software investment third-quarter decline.

This strengthening will not likely be enough to prevent a significant slowing in overall GDP growth in the fourth quarter of 2012 to around 1.2% from the 3.1% jump in the third quarter as outsized support from both inventories and government defence spending in the third quarter are unlikely to be repeated; however, even stronger orders growth in the fourth quarter of 2012 should provide reason for optimism that recent improvements in business investment will be sustained despite some ongoing fiscal uncertainty surrounding the current debt ceiling and budget negotiations. Along with the respectable performance of labour markets in recent months, this bodes well for overall GDP growth to improve early in 2013 despite some near-term fiscal drag.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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