US durable goods orders drop despite rebound in core orders

The Commerce Department's durable goods report for November showed that, excluding transport, core orders rebounded by 2.4 percent month-on-month last month, more than reversing a 1.9 percent decline in the last month.

However, headline orders fell by $2.6 billion or 1.3 percent to $193.7 billion, mainly because of a sharp drop back in commercial aircraft orders.

A separate report by the Commerce Department showed personal income and expenditure in the U.S. rose for the fifth month during November indicating that the average consumer was growing more confident about the economic recovery and their financial situation.

The data releases today support our estimate that US GDP growth probably accelerated to between 3.5% and 4.0% annualized in the fourth quarter, from 2.6% in the third, Capital Economics economist Paul Ashworth said in a note.

The higher-than-expected drop in the orders for manufactured goods was driven by transportation-equipment orders, which were down $6.2 billion or 11.9 percent to $45.5 billion. Analysts had estimated a drop of one percent. Transportation-equipment orders have fallen in three of the last four months, data showed.

Inventories of manufactured durable goods in November, up eleven consecutive months, increased $1.9 billion or 0.6 percent to $319.1 billion, following a 0.6 percent October increase.

Inventories are growing marginally more slowly in the fourth quarter than they did in the third, which implies they will be a small drag on overall GDP growth, Ashworth noted.

Non-defence core capital goods orders rebounded by 2.6% m/m in November, but only after a more severe 3.6% decline in October.

The 3m/3m annualized growth rate slowed to 7.1%, from a peak of 30% plus in the summer. While actual shipments of non-defence core capital goods rebounded by 1 percent last month, that wasn't enough to offset fully the 1.2 percent decline in October, Ashworth pointed out. Also0, the annualized growth rate slowed to 5.9 percent in November, from a peak of almost 20 percent in the summer.

This suggests that while business investment in equipment and software is still expanding, the pace of growth has slowed sharply from earlier this year, he said.