Durable Goods February 2025: Preventive Medicine?

We look at a stronger-than-expected durable goods release ahead of the next round of tariff announcements.

Mar 26, 2025

Dam tariffs. I better get the production chain going early…I need China supplies.

Headline durable goods orders rose 0.9% in February with no downward revisions to the 3.3% surge from the January reading.
It is more telling that the unexpected strength comes from a more diverse base of sectors with ex-Transport orders growing 0.7% this month, which is the best month going all the way back to March 2022. That unusual strength most likely points to where policy uncertainty and tariffs have led to demand pull-forward in response.
The highlight of the release was a 4.0% increase in Motor Vehicles orders that kept the Transport category positive on the month even with mixed Aircraft results. We also see moderately strong demand in Fabricated and Primary Metals.
As we go to print, the market did not see this as enough relief from economic slowdown and recession concerns as the curve crept up with the 2Y up 3 bps and 10Y up 4 bps. The very ugly Conference Board numbers yesterday did not help.

The above shows the recent history of durable goods orders that has been one of the more volatile economic indicators we track given the lumpy nature of the Aircraft lines. Expectations for this month had set a low bar after such a strong January, leading to diverging rationales.

The bulls look at a data point that contradicts the myriad management commentary and sentiment indicators while the bears point to inventory buildup exercises ahead of incoming tariff policy war games. Given such clear signaling around incoming tariffs, we lean towards the idea of defensive, pull-forward ordering and inventory build by the hardest hit industries such as autos and metals consumers as the most likely rationale to the continued strength this month.

As we look forward to the next months, the downstream effects and adjustments made along supplier chains will keep working through the numbers above and below. The headline commentary and erratic shifts and changes with selective leaks and off-the-cuff Q&A all making for challenging conditions for capital budgeters. The “pause” button was used a lot in 2018-2019 and will likely be seen more in coming months in economic releases. The scale and breadth of the tariffs in 2025 dwarf the 2018-2019 experience.

It is also worth highlighting that trade agreement was struck with Mexico and Canada by fall 2018 on the USMCA (effective by mid-2020 after clearing the government approvals. The PR spin now is “we did fine last time.” That is of course nonsense since asset returns were brutally bad in 2018 and the FOMC had to ease on weak exports and low fixed investment in 2019.

The timeline dragging on has allowed some pre-ordering, inventory building and pull-forward for many durables groups, but the expansion and capex plans that might have moved ahead are likely on hold for many even if the companies do not want to advertise it and get into a political bind.

We will get a better sense of that with 1Q25 earnings. It is tough to get a good read when the tariff can be a shield and a sword for Trump to use to quiet the vocal criticism. You can find it in the trade press, which is clearly not read by the current economic swat team in Washington.

The above table details the line items driving the strong month along with key ex-Defense and ex-Transport lines. Motor vehicles had already trended down prior to the 4.0% surge this month as elevated auto loan rates and weakened consumers already signaled weaker auto sales. With 25% auto tariffs potential in the pipeline (maybe, maybe not, maybe in part) and dialogue around copper and lumber and country targets for next month’s headwinds, it is no surprise to see a small pop now to help offset some bottom line pain while further tariff uncertainty plays out. Rounding out the transport line items, we see a swing for the aircraft lines signaling the typical bulkiness of those orders and served as a small moderation to this month’s headline number.

Below the transport lines, we see more industries where preemptive restocking efforts could signal preventive moves by procurement teams. Primary and Fabricated metals are high on the list of first order effects on tariffs and possible pull-forward impacts here. We see this as supporting the idea that this report overstates organic strength. The next two months will be key as we see how companies react and where the tie ins to short-term policy reaction are or if the manufacturing resilience holds despite it all. Every day holds a new rumor or vague, qualified public comment.

Tariff links:

Fed Gut Check, Tariff Reflux 3-22-25
Tariffs: Strange Week, Tactics Not the Point 3-15-25
Trade: Betty Ford Tariff Wing Open for Business 3-13-25
CPI Feb 2025: Relief Pitcher 3-12-25
Auto Suppliers: Trade Groups have a View, Does Washington Even Ask? 3-11-25
Tariffs: Enemies List 3-6-25
Happy War on Allies Day 3-4-25
Auto Tariffs: Japan, South Korea, and Germany Exposure 2-25-25
Mini Market Lookback: Tariffs + Geopolitics + Human Nature = Risk 2-22-25
Reciprocal Tariffs: Weird Science 2-14-25
US-EU Trade: The Final Import/Export Mix 2024 2-11-25
Aluminum and Steel Tariffs: The Target is Canada 2-10-25
US-Mexico Trade: Import/Export Mix for 2024 2-10-25
Trade Exposure: US-Canada Import/Export Mix 2024 2-7-25
US Trade with the World: Import and Export Mix 2-6-25
The Trade Picture: Facts to Respect, Topics to Ponder 2-6-25
Tariffs: Questions to Ponder, Part 1 2-2-25
US-Canada: Tariffs Now More than a Negotiating Tactic 1-9-25
Trade: Oct 2024 Flows, Tariff Countdown 12-5-24
Mexico: Tariffs as the Economic Alamo 11-26-24
Tariff: Target Updates – Canada 11-26-24

Macro4Micro

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