Durable Goods Orders pick up in February after unusually weak start to year

Summary

The February durable goods report showed a partial reversal of January's weakness, though we'd say it's still consistent with a stalling manufacturing sector. We expect we're a few months away from a gradual pickup in activity.

Orders pick up, but sustained recovery still likely few months away

Orders for new durable goods rose 1.4% in February. That wasn't enough to reverse the January weakness, which was revised lower to show a drop of 6.9% during the month. But that weak start to the year continues to be driven by a plunge in aircraft orders, and elsewhere, the data were more favorable last month (chart). Specifically, orders excluding transportation still rose 0.5% in February, more than reversing the 0.3% drop in January.

Underlying orders activity, however, continues to demonstrate a volatile pattern. That is, the major manufacturers that saw orders drop in January saw a pickup last month including machinery (+1.9%), primary metals (+1.4%) and fabricated metals (+0.8%). Computers & electronic products (-1.4%) and electrical equipment & appliances (-1.5%) saw orders fall, though these components have been notable bright spots recently. Computers & electronic products, for instance, rose for six straight months through January (chart), and as we elaborate on in a recent note, these areas of production are ripe for activity amid the recent boom in private manufacturing construction. Core capital goods orders (excluding defense and aircraft) rose 0.7% last month after two consecutive monthly declines, indicating some improvement in demand, but the current rate environment continues to hold a lid on broad activity. We don't anticipate a large rebound in capex demand until the Fed begins to ease policy in the second half of the year.

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