Durable Goods Orders: Capital Investment Up in Recent Months

By SBE Council at 27 October, 2020, 3:15 pm

by Raymond J. Keating-

Durable goods manufacturers' orders increased by 1.9 percent in September, according to the latest report from the U.S. Census Bureau. That marked the fifth monthly increase in a row, after the large declines in March and April (see chart below). However, as of September year to date, new orders were down by 10.1 percent versus the same period last year.

Source: Federal Reserve Bank of St. Louis, FRED

It's always important from an economic growth standpoint to take note of capital goods, i.e., business investment in productive capacity. New orders for capital goods increased by 4.7 percent in September, following on growth in July and August (see following chart). Previously, a big falloff in March and April was followed by a spike up in May and another large decline in June. This data does tend to be volatile on a monthly basis. Even with three months of growth, new orders year to date as of September were off by 12.4 percent versus last year.

Source: Federal Reserve Bank of St. Louis, FRED

Nondefense capital goods excluding aircraft new orders is particularly noteworthy given that it's a signal for what private investment in equipment and software will look like in the GDP data. This measure grew by 1.0 percent in September. We've seen growth here now for four straight months, but slowing in each month (see the following chart). Compared to the same time last year, these orders year to date were down by 0.5 percent - which given what's happened in our economy, isn't all that bad.

Source: Federal Reserve Bank of St. Louis, FRED

The September durable goods orders report shows manufacturing and investment moving ever so slowly in the right direction, as we try to claw out of a deep hole - even while also trying to figure out the implications of the recent rise in COVID-19 cases.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.