Orders for durable factory goods increased 1.7% in February, alongside a 0.3% upward revision to January's level. This measure includes orders for aircraft, which bounce around erratically from month to month and take years to fill anyway. Net of aircraft and other transportation equipment, other durables orders showed a more modest 0.4% February increase and a 0.1% upward revision to January.
Still, this more modest increase in "underlying" durables orders sustains an uptrend that has been in place for eight months now, with a 7.5% annualized rate of increase over that span. In contrast, this indicator had shown negative growth over the four-and-one-half years prior to June, so it is certainly welcome news that the recent rebound in manufacturing activity is continuing.
Capital goods orders provide a very important component of durable goods activity. Orders for nondefense capital goods rose 4.1% in February, with a 1.3% upward revision to January. Net of the volatile aircraft sector, however, capital goods orders declined a slight 0.1%, with an offsetting upward revision to January.
The accompanying chart paints a vivid picture. Underlying capital goods orders have held roughly flat over the last two months, after having bounced nicely in the last half of 2016. Aircraft orders are bouncing around as they always do, but the underlying trend there looks to be slightly downward. Shipments of both these types of goods are moving in line with the orders trends.
Beneath the short-term noise, capital spending activity looks to be rebounding at least modestly, and this too is welcome news after five years of declines. We believe a growing US manufacturing sector is crucial to the chances of better overall growth performance this year and next, so it is important that recent growth in factory orders and industrial production continue.
The growth seen in overall orders within today's data is encouraging. Hopefully, the last two months' pause in underlying capital goods orders will give way to further growth in the months ahead.