Huge Gain in February Durable Goods Not What It Seems

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Durable goods is one of the more volatile economic readings because it involves so many big ticket items from so many different segments of the economy. The headline number on durable goods for the month of February was up 5.7%. Today’s report from the Commerce Department was expected to be 3.5%, according to Bloomberg, and 4.0%, according to Dow Jones. It also compares to a revised headline figure of -3.8% in January.

This looks like a huge beat on the surface. Unfortunately, that is where the news turns south. Business investment actually scaled back. The big upswing came from aircraft orders and from defense spending as aircraft and related demand was up a whopping 68%, making the entire transportation sector up 21%.

If you back out transportation, this reading would have been -0.5% in February, worse than the 0.7% gain expected by Bloomberg. Defense spending likely was up ahead of sequestration cuts. If you will recall, we saw the similar wave of spending in December ahead of the fiscal cliff, followed by a massive drop off in January.

Another report signaling future demand was unfilled orders, and that was up 0.9%. Today’s Commerce Department reading for February durable goods was up huge on the surface. Unfortunately, it was just not anywhere as good as it looked on the surface.

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