Advance readings show that total orders for durable goods fell 3.7% at the start of the year, reported the Census Bureau this morning. This drop essentially reverses the gain in orders from the previous two months and is a sign that freight demand for durable goods may be cooling after rapid growth in the previous quarter.
The details of this report are a bit more encouraging, as much of the decline during the month was driven by orders for commercial and defense aircraft, which fell nearly 33% in January. Orders for aircraft, and transportation equipment in general, are notoriously volatile and can often skew the overall numbers significantly in any given month. Still, stripping away these volatile components, durable goods orders showed some weakness, falling 0.3% from December's levels.
Orders are a leading indicator for shipments of durable goods such as machinery, computer equipment, and primary metals, giving a view of actual shipments of these goods a couple months in advance. It is worth noting that orders excluding transportation equipment had been running at a rapid pace over the past couple of quarters, with year over-year growth over 8.5% in the 4th quarter.
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As such, the decline in orders is best viewed as a return to more normal levels of growth after demand heated up throughout 2017. These numbers would suggest that shipment growth should moderate some in upcoming months
Behind the numbers
The acceleration in goods orders over the past year mirror many of the trends in freight markets over the same time frame, with surging demand for durable goods helping to keep capacity tight for truckload and less than truckload carriers. Shipment growth remained strong in this morning’s report, but the orders data suggests some moderation as we head into the 2nd quarter.
The transportation equipment decline was a large one, but most of it was driven by commercial airlines. Trucking and other motor vehicles actually saw a modest increase in orders in January. Declines in the the overall transportation sector nearly matched the large increases in the previous month in terms of magnitude, and remain almost 7% higher than this point last year despite the monthly drop.
Results on the nondurable side of the goods economy, and additional detail for durable goods will be published early next month and should help paint a fuller picture of freight demand in the economy going forward.