This week's durable goods report was largely disappointing with the 2.2% headline decline, partly the result of a sharp drop in civilian aircraft orders. Excluding the transportation sector, orders still fell 0.6%. With some upward revisions to prior data and a better-than-expected outturn for shipments of core capital goods, equipment spending is still tracking with our Q1 forecast for a 5.7% annualized growth rate.
The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week's durable goods report. Stripping out the volatile defense and aircraft components tends to reveal the underlying trend in activity, and revisions to core orders and shipments were fairly positive. But core capital goods orders declined 0.3% during the month after a 1.3% gain to start the year, suggesting some stalling in activity in February.
Since the GDP account counts bookings once shipped, shipments are the more important indicator when considering the impact on rst quarter growth. Core capital goods shipments (including aircraft) rose a more modest 0.2% in February after near 2% gains in the prior two consecutive months. Despite the step down in growth, the solid start to the quarter still leaves equipment spending in a decent position
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