Durable Goods Sept 2024: Taking a Breather

We look at another transport-led down month for Durable Goods that was otherwise fairly uneventful as election outcomes loom large.

Oct 25, 2024

Despite a headline decline of -0.8% for Durable Goods orders, the overall demand picture looks intact as excluding transportation leads to a moderate, but positive +0.4% rise.
The transport X-factor has remained consistent throughout this year with orders down -1.5% YTD vs. 2023 but up 1.2% on an ex-transport basis.
Boeing’s ongoing trouble continues to take a material financial toll on BA cash flow and its balance sheet with the current trajectory seeing little relief in the near-term and spilling into the supplier chain on the strike and production setbacks.
Uncertainty around the path of monetary policy and the possible tectonic shifts in tariff fallout could be key decision points for corporate capital budgeting decisions with political turmoil and social unrest (e.g. mass deportation fear) potentially a factor for restrained consumer demand growth.

The above chart shows the month-over-month changes for durable goods. Even with durable goods orders showing minor contraction on the year, the overall resilience has impressed with more good months than bad since March 2022 when the hiking cycle began. It is a reminder that many of the activities that fall under durables are less flexible and harder to rapidly shift given their contractual nature. That baseline continues despite shorter-term economic conditions.

With the first rate cut already on the books, the next leg of durable goods orders is more likely about remaining disciplined. Planning for the long-term and not overextending were important when rates were higher and will still be important as longer rates have been stubborn since the easing.

There are myriad areas to renew investment such as energy and data warehousing near term, but even energy comes with the questions of who will be calling the shots in Washington and how that might flow into Russian oil flows and the situation in Ukraine.

The first 50bps cut likely will not move the needle much given the sustained steep inversion and rising long rates, but cumulative easing effects should at least see some incremental support for demand in the coming months. There is no getting past the reality of the election and how potential tariff excess could lead to some reevaluation of capex plans subject to the election outcomes and the next round of rhetoric.

The above chart has the narrow goal of stripping out the transport line which is just over a third of the durable goods orders. We like to use it as a reminder every few months that the lion’s share of the volatility shown in the previous chart is linked to the lumpy nature of transport spending and has been especially the case in the latest round of Boeing news flow.

Comparing volatility between headline and ex-transport numbers further illuminates the impact of transport. While headline figures ranged from +9.8% to -6.9% over the past 3 years, ex-transport orders maintained a much narrower range of +2.6% to -1.4%. This contrast in ranges (16.7% vs 4.0%) underscores the importance of ex-transport data as a clearer signal for the underlying manufacturing trends. The more stable ex-transport series has shown modest growth since the Fed began hiking rates in March 2022 and is in line with the type of measured expansion the Fed's policy approach aimed to achieve.

The above table shows the line items for the Durable Goods Orders and major subgroups within. We see some mixed results in the broader picture as non-transport related lines came in 3 positive, 2 negative, and one flat on the month. Fabricated Metals and Motor Vehicles and Parts were both brighter spots among the release seeing 2.1% and 1.1% growth, respectively.

Finally, we look at the Durable Goods shipments above with an eye to the upcoming GDP release next week. The running 3 months is down slightly and so will weigh on what is expected to be around a 3% mark for 3Q GDP.

Kevin Chun, CFA kevin@macro4micro.com

Glenn Reynolds, CFA glenn@macro4micro.com

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