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Economic Updates

Durable Goods Orders

HEADLINES
Durable goods orders rose 0.2% in August after increasing an unrevised 2.0% in July. The
number for August translates into $454m in new orders and marks the third monthly increase
in a row.

WHY DO I CARE?
While the upturn is not large, it implies consistent growth in the sale of goods that have an expected life of more than one year. This is considered a leading indicator and a positive sign or economic growth.

WAS THERE A BIG SURPRISE?
An increase that is 1.4% above expectations is not a big surprise in durable goods, which can have large swings due to the high value of individual orders for things like aircraft, which is the case in this report. Still, this is a positive surprise and is made more credible by the fact that the number has been consistently positive for three months in a row.

DETAILS

The strength in this report came primarily from an increase in defense aircraft orders, which grew $2.1 billion. This was largely offset by a decrease of $1.9 billion in non-defense aircraft. In addition, auto sales went down $0.5 billion. There was strength in primary and fabricated metals and in machinery as well.
As we noted last month, the weakness in durable goods between February and May was troublesome in that it coincided with other indicators that corporate investment and industrial activity were slowing down. In the third quarter, this weakness in manufacturing and industry seems to be moderating, and, so, it is likely to contribute positively to GDP growth rather than subtract as it did in the second quarter.

Erik Olsen is Co-Founder and Managing Partner of CataMetrics Management, LLC. Catametrics
provides portfolio-construction methodologies, strategic marketing and investment-management
expertise to investment advisers and their clients.
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