Yet another piece of the second-quarter puzzle is not favorable. Durable goods orders, down 0.7 percent in April, do not confirm the month's big jump in industrial production nor all the strength in the regional factory reports. Aircraft is not a factor in today's report as the ex-transportation reading is also negative, at minus 0.4 percent which is well below Econoday's low estimate. Also below the estimate are orders for core capital goods (nondefense ex-aircraft) which came in unchanged following a downward revised unchanged reading in March.
Manufacturing output soared in the industrial production report but shipments in this report fell 0.3 percent and follow March's 0.1 percent decline. Shipments of core capital goods, which are an important input into second-quarter GDP, also fell 0.1 percent. And the weakness in capital goods orders does not point to shipment strength in June or July.
Inventories edged only 0.1 percent higher but, given the decline in shipments, the inventory-to-shipments ratio moved one notch higher to a less lean 1.69. A plus in the report is unfilled orders which, after long contraction, have put together two straight positive months, at 0.2 and 0.3 percent.
Another positive is an upward revision to March, but that was back in the first quarter which was already weak anyway. There really aren't a lot of positives in today's report. The nation's factory sector, despite recovery in energy equipment, is not showing the promise indicated by sentiment reports. Weak foreign demand remains a likely suspect for the struggling performance.
Aircraft orders lifted durables throughout the first quarter and were the backbone for March's solid 0.7 percent rise. But the story is different when excluding civilian aircraft as the ex-transportation reading fell 0.2 percent. Forecasters see the aircraft factor playing out in April, with the consensus for overall durable orders at minus 1.0 percent but ex-transportation at plus 0.4 percent. Core capital goods are not expected to show much strength, at a consensus gain of only 0.2 percent.