Durable Goods Demand Continues to Improve

Durable Goods orders rose for the third month in a row, indicating manufacturing activity is rebounding after the recent period of inventory reduction. In April, durable goods orders rose +.6% MoM (consensus +1%), and March's very strong figure was revised even higher to +5% MoM from +4.3% originally. When the volatile transportation orders are excluded, orders rose a much stronger than expected +1.5% MoM (consensus +.6%). The last time orders for durable goods, products meant to last for many years, rose three months in a row was in 2005. Durable goods orders have now risen in five of the last six months.

Many people like to watch capital goods excluding defense and aircraft as a good indicator of business investment demand. Orders of this group rose +1.2% MoM in April, on some give back from the unusually strong +4.4% MoM gain in March. Shipments for this "core capex" categery are used for computing GDP, and they rose +.7% MoM in April versus +1.5% MoM in March. Unfilled "core" capital goods orders rose +1.3% MoM.

Orders for commercial aircraft fell 11% MoM as Boeing reported they received 136 new orders last month. Boeing's order back log is at record levels. Unfilled orders for manufactured durable goods have risen for 23 of the past 24 months, and are also at a record high.

Durable goods inventories rose +.5% MoM, a continuation of a 14 month trend higher. But, at the current sales pace, the supply fell to 1.47 months, which is the lowest for this year. There are signs that the inventory adjustment in the auto sector may be completed.

New orders for defense goods rose +.8% MoM. Ex-defense new orders rose +.6% MoM, down from a +5.2% MoM gain in March.

On an annual basis, new orders are up +4.7% YoY, with non-defense capital goods rising +11% YoY. Defense has fallen -5.8% YoY. Transportation, due to aircraft, not autos, has risen +12.4% YoY, with non-defense aircraft up a huge +53.3% YoY. Other areas of strength include electrical equipment +10.1% YoY and primary metals +11.3% YoY. Shipments have risen 4% YoY. Inventories have grown +7.1% YoY and unfilled orders have risen +19.8% YoY.

Today's data is an encouraging sign that manufacturing demand will improve from the current modest levels, but is not indicating a robust recovery, but a moderate improvement. 2nd quarter GDP should also be enhanced by this data.

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Initial claims rose more than expected to +311k (consensus 305k) in a rebound from the prior two weeks unusually low levels. Overall, initial claims remain low, with the four week trend running at 303k. Continuing claims rose more than expected.