Contrary to economists’ predictions, durable goods orders rose in September due to a surge in defense capital goods and transportation orders. Bar those two sectors, however, the rest of durable goods manufacturing are still on a downturn.

New orders for manufactured durable goods rose by $1.6 billion (0.8 percent) to $207.8 billion in September, the United States Census Bureau reported yesterday. The surprising surge followed the 5.5 percent decrease in August and was led by new transportation and defense capital goods orders. This is the fourth increase in the last five months.

September shipments of manufactured durable goods — items expected to last three or more years — also increased by $0.4 billion (0.2 percent) to $208.8 billion following an August decrease of 4.2 percent.

The new report is an encouraging contradiction to the 1.2 percent decline for September durable goods orders forecasted by Wall Street economists, Reuters states.

The report notes transportation and defense capital goods orders as the key factors for the rise. Transportation orders jumped 6.3 percent overall — the highest jump since July 2007, Reuters adds. That includes a 3 percent gain for autos and auto parts, a surge of 10.1 percent in defense aircraft orders and a 29.7 percent increase for non-defense aircraft orders, Econoday says.

Orders for defense capital goods overall, which includes the previously cited defense aircraft orders, went up $1.9 billion (19.6 percent) to $11.8 billion, according to the US Census Bureau. Other sectors that posted gains were machinery (up 0.5 percent) and electrical equipment (up 1.5 percent), Econoday adds.

Though year-on-year new orders for durable goods improved, down 3.6 percent in September from 5.8 percent in August, the significant increases were strictly isolated to transportation and defense while the rest of durable goods manufacturing continue to suffer. Primary metals were down 4.5 percent; fabricated metals down 0.9 percent; computers and electronics down 1.4 percent; and communications equipment down 14.6 percent.

“Certainly, the aircraft industry (or rather Boeing) is doing well despite the recent strike,” Econoday says. “But outside of aircraft, durables manufacturing is still on a downturn.”

New orders in general had not done well in September as the most recent Institute for Supply Management (ISM) Report on Business registered it at 38.8 percent, 9.5 percentage points lower than the 48.3 percent registered in August.

The global manufacturing new Orders index by JPMorgan echoes the ISM report, posting 40.8 for September — way below the neutral 50.0 mark. This was due to weak numbers from Spain, the U.K., France and the U.S. In fact, September had the strongest drop for the U.S. since January 2001, JPMorgan adds.

Director of Global Economics Coordination for JPMorgan David Hensley says: “The deepening of the downturn in global manufacturing during September was greater than anticipated, with rates of contraction for production and new orders the second-strongest in the survey history. If this is borne out by official data, this would be consistent with a decline in global IP of around 4 percent. The widespread nature of the contraction, combined with its corresponding reduction in employment, further reinforces the far reaching effects of the turmoil manufacturers are facing.”

Resources

Manufacturers’ Shipments, Inventories and Orders
United States Census Bureau, Oct. 29, 2008

Durable Goods Orders Rise Unexpectedly
by Doug Palmer and Neil Stempleman
Reuters, Oct. 29, 2008

2008 U.S. Economic Events & Analysis — Durable Goods Orders
Econoday, Oct. 29, 2008

September 2008 Manufacturing ISM Report on Business
Institute for Supply Management, Oct. 1, 2008

Global Manufacturing Contracted at Fastest Rate Since Late-2001
JPMorgan and Markit Economics, Oct. 1, 2008