24/7 Wall St.

Investors have been taught over and over that the U.S. Commerce Department’s reading on durable goods each month is perhaps the most volatile of all major economic readings. The reason the report matters so much is because its big-ticket items can make up a large component of each quarter’s gross domestic product (GDP) report. August saw a major tank in durable goods, after a massive gain in July. Both were recent records for the headline data.

24/7 Wall St. would expect for this reading to normalize very soon. With readings of -18.2% in August and a +22.5% in July, one has to wonder if this volatile reporting can continue.

Boeing Co. (NYSE: BA) is the major lynchpin here. In July its orders from the annual airshow were massive, so it wasn’t unexpected that the company would have seen orders crater in August. Dow Jones signaled that three were 324 plane orders in July and only 107 in August.

The real metric to smooth things over in monthly durable goods is the core durables reading — non-defense capital goods orders, excluding aircraft. This reading is considered to be the real leading indicator in the broader economy that takes out volatile huge ticket orders such as planes and massive military orders.

The non-defense capital goods orders excluding aircraft was up by 0.6% in August, and it was initially reported as -0.5% in July and was up 1.5% in the initial reports for June. That being said, the durable goods volatility readings are simply not quite as erratic as the headline reporting might suggest.

As airplane orders begin to normalize, the headline readings should start to normalize as well. Maybe now we can go back to durable goods reports being up or down by 8% or 10% each month. Maybe that should say “only.”

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