Defense came to the rescue of November's durable goods report though core capital goods orders are another positive. Durable goods fell 4.6 percent in November but were down an even sharper 6.6 percent excluding defense. When including defense and excluding transportation (commercial aircraft and vehicles), orders rose a better-than-expected 0.5 percent.
Orders for core capital goods (nondefense ex-aircraft) rose a very solid 0.9 percent though the gain is offset slightly by a 2 tenths downward revision to October where the gain is now only 0.2 percent. Shipments of core capital goods, reflecting prior weakness in orders, show only modest life, also at 0.2 percent.
Turning back to defense, orders for defense aircraft doubled in the month, up 103 percent. Orders for defense capital goods, which include aircraft, rose 29 percent. But outside of defense, non-aircraft components show strength including communications equipment (up 6.7 percent), primary metals (up 2.3 percent), machinery (up 1.3 percent), and vehicles (up 0.8 percent).
Total shipments inched 0.1 percent forward in November with inventories also up 0.1 percent to keep the inventory-to-shipments ratio stable at 1.64. A negative in the report is a 0.2 percent dip in unfilled orders following a 0.8 percent rise in October which looks very much like an outlier.
This report is known for its volatility which for November is highlighted by aircraft, both defense and commercial for opposite reasons. In sum, year-end momentum for the factory sector appears to be in place, suggesting a better finish to what has been a flat year.
Durable goods orders rose a very sharp 4.8 percent in October but, in a give back, are expected to decline 4.0 percent in November. Ex-transportation orders, which strip out monthly swings in aircraft orders, are expected to inch 0.2 percent higher. The factory sector has been showing momentum going into year-end though capital goods have remained soft, pointing to limited business investment and a limited contribution from the nonresidential investment component of the fourth-quarter GDP report.