Durable Goods Jan25: Waiting Game

The Durable Goods report for Jan brings a headline surge from Aircraft but otherwise indicates moderation in core manufacturing.

Feb 27, 2025

Durable goods orders jumped 3.1%, the third highest reading in 3 years and reversed the trend of the past two months. Aircraft demand surged in January (+93.9%) and drove the growth after weighing on the headline number in the prior two months with double-digit declines.
Below the headline number, the ex-transport durable goods orders were flat this month, marking a third month of slow growth and indicating some underlying weakness in business investment as companies either pull back or wait for more policy certainty.
The torrent of America First policies is not a one-size-fits all solution that spurs overnight growth, especially later in the cycle with interest rates still restrictive. With tariff policy uncertainty looming, businesses must reassess their supply chain strategies. The latest round of tariffs—now set to take effect in early March—will introduce another layer of complexity to the durable goods outlook, where many will see first-order effects.

The above chart shows the history of MoM moves in Durable Goods orders with January’s print of 3.1% only behind rebound months of Nov23 and Jul24. Peeling back a layer, it is not hard to see that the common factor is large upward swings in nondefense aircraft and parts and that volatility is a feature of the headline number. For this month, the transport equipment jumped 9.8% with nondefense aircraft up 93.9% but motor vehicles and parts on a continued slide at -2.5%.

Autos are particularly in the crosshairs as trade and tariff policy becomes clearer with news today again confirming 25% tariffs on Canada and Mexico and 10% more for China. Motor vehicles and parts orders are on a downtrend and below where they were last year, and this is before major disruptions from tariff wildcards. The deterioration of consumer credit and affordability hurdles already weigh heavily here and potential increases in prices due to production cost increases do not bode well for demand.

Auto sales ended 2024 on a strong notes, but import tariffs would dramatically shift production costs as well as prices with Mexico the #1 importer into the US, Japan, South Korea, Canada, and now the EU all in the cross hairs at the national level (EU as a bloc) but also with the threat of direct tariffs on autos as well as the trade partners. The tariffs on steel and aluminum might now also spread to copper as the cost impacts from materials to components to finished goods all pile up (see GDP 4Q24 Second Estimate: PCE Inflation the Main Event 2-27-25, Auto Tariffs: Japan, South Korea, and Germany Exposure 2-25-25).

Overall, new corporate investments and capex programs will remain selective and with much more activity likely further directed towards data centers and computing capabilities than broad industrial expansion. Resilience in aircraft demand allows the Fed some breathing room but continued weakness in the broader industrial picture may expedite easing decisions. That is not the good kind of easing with the inflation specter making the rounds again and especially around tariffs.

The next chart here strips out the volatility from the transport line that makes up just over a third of durable goods orders. The January number looks much less impressive with a recent moderation since last August. Examining the recent history above, it looks much more like late cycle capex with high financing costs appropriately leading to caution on investment cycles. The current climate is tailored towards measured investments and has not yet seen the magnitude of revival in US manufacturing activity that either the previous (CHIPS, IRA, etc.) or current administration policies promised.

We break out the underlying industry line item variances in the table above. We already discussed the transport related swings but the degree of volatility for nondefense aircraft parts is clearly visible here. The remaining line items see mixed results with the large Fabricated Metals (-1.2%) and Other (-0.6%) categories negative this month. Machinery as the other largest category reports weak gains as low, moderate growth continues there. The standout winner is the Computers and Electronic Parts line, one of the best performing as the selective investments tied to AI and computing remain in full swing.

The last table covers the shipments side of the ledger, whose data lags the above orders data. We produce the above as it pertains directly to the GDP numbers and this month sees them up at 0.4% growth though with a similar trend of orders moderating growth in the ex-transport line.

Overall, today’s report sees durable goods rebounding but with growth highly concentrated in aircraft orders and core durable goods showing signs of stagnation. The weaker business investment numbers despite ongoing policy support are another data point for slowing economic activity that will get a fresh test amidst the ongoing policy torrent.

Tariff links:

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
Tariffs: The EU Meets the New World…Again…Maybe 10-29-24
Trump, Trade, and Tariffs: Northern Exposure, Canada Risk 10-25-24
Trump at Economic Club of Chicago: Thoughts on Autos 10-17-24
Facts Matter: China Syndrome on Trade 9-10-24

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