Advanced Durable Goods Shipments Feb 2024: Still Weak

seekingalpha03-27

The Census Bureau released data on Advanced Durable Goods Manufacturers' Shipments, Inventories, and Orders in the U.S. for February 2024.Overall growth in durable goods shipments remains weak, with ...

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Therefore, policy implications for the Fed are inconclusive.Weakness in primary metals and durable goods excluding manufacturing could have implications for cyclical sectors in the U.S. equity market.thitivong The Census Bureau just published its Monthly Advance Report on Durable Goods Manufacturers' Shipments Inventories and Orders. Released at 8:30 AM, March 26, 2024, this report contains initial estimates of Durable Goods Manufacturers' Shipments, Inventories and Orders in the US during the month of February 2024. In this article, we provide an in-depth analysis of the just-released data, focused on shipments, and then discuss their implications for the U.S. economy and financial asset prices. Summary Data and Analysis We begin with summary data and analysis which we highlight in Figure 1. We recommend that readers pay particular attention to the percent rank of Month-on-Month (MoM) growth, MoM acceleration, and the surprises relative to forecasts. Figure 1: Change, Acceleration, Expectations, and Surprise Summary of Durable Goods Data (Census & Investor Acumen) As can be seen in Figure 1, the nominal current dollar value of Advanced Durable Goods Shipments (not adjusted for inflation) for February 2024 totaled $282.67 billion. The +1.25% MoM rate of change ranked in the 73rd percentile. Notably, when excluding transportation, growth decelerated (-0.36%) and fell below the historical median (41st percentile). The Impact of Inflation on Advanced Durable Goods Shipments In this section, we highlight the impact of inflation on the interpretation of Advance Durable Goods Shipments data. Price inflation impacts the quantity of goods and/or services that a given amount of money can buy. In order to track the actual quantity (as opposed to mere dollar value) of goods that retailers sell, it is necessary to adjust the nominal sales figures (reported in \"current dollars\") for the impact of inflation. In Figure 2, we show Advance Durable Goods Shipments in both \"current dollars\" and in \"real\" terms. The \"real\" figures represent the economic value of goods shipped after they have been adjusted for inflation. Figure 2: Advanced Durable Goods Shipments in Current Dollars and Adjusted for Inflation Inflation Adjustment to Nominal Durable Goods Shipments Data (Census & Investor Acumen) As can be seen in Figure 2, advanced durable goods in current dollars during February was estimated to have grown by +1.25% MoM. However, prices inflated by +0.35% during the month. Leaving us with a real growth of +0.90%. In real terms, the percent rank of MoM growth fell slightly, but is still well above historical averages for Durable Goods. It is notable, however, that Real Durable goods excluding transportation is well below the historical median (34th percentile). Please note that for the remainder of this article, figures will be presented in \"real\" (inflation adjusted) terms. Analysis of Annualized Growth of Key Components of Durable Goods Over Various Time Periods In this section we break down Advanced Durable Goods into key components, scrutinizing their annualized growth rates over various time frames (1m, 3m, 6m, and 12m). The purpose of this analysis is two-fold. Our first purpose is to identify which components of durable goods are growing at a faster or slower rate than the overall aggregates. Our second purpose is to determine whether, and to what extent, growth rates are accelerating or decelerating over various time frames. Figure 3: Annualized Growth Rates of Key Components Annualized trends in Real Durable Goods Shipments Data (Census & Investor Acumen) Strength and momentum of overall growth. As can be seen in Figure 3, overall real growth, on a 3-month annualized basis (-4.11%), remained well below the historical median (24th percentile), despite the strong rate of change data (72nd percentile) for the most recent month. It is also significant to note that the 3-month annualized growth rate has continued its sluggish trend relative to the 6-month annualized growth rate of -2.59% (25th percentile). Notable rates of change. It is interesting to pay attention to some specific categories and periods in which the annualized rates of change have been notable. Here we focus on the percent rank of the 3-month annualized rates as the monthly changes are subject to large volatility. The only item in which particularly notable positive rates of 3-month annualized growth have been registered was 2.90% (62nd percentile) in category All Other Durable goods. By contrast, items in which notable rates of contraction were registered include: -21.39% (6th percentile) in category Primary Metals, -6.78% (21st percentile) in category Computer and Electronics Products, and -2.81% (33rd percentile) in category Fabricated Metal Products. Extreme accelerations and reversals. It is important to pay attention to sectors in which the rates of change have changed severely, as these occurrences can sometimes provide leading signals regarding the strength and/or direction of the overall trend. To do this we will focus on the largest single item change from the 6-month growth percent rank to the 3-month growth percent rank. The most notable change is the rapid reversal in Primary Metals going from a 6-month annualized rate of +0.12% (52nd percentile) to a 3-month annualized rate of -21.39% (6th percentile). Contributions to Change and Acceleration: Components Analysis In this section, the analysis is focused on identifying which components of real durable goods shipments are driving the MoM growth (contraction) and MoM acceleration (deceleration) in the overall real durable goods shipments figures. Figure 4: Real Advance Durable Goods Contributions to Change and Acceleration Component Contribution to Real Durable Goods Shipments Data (Census & Investor Acumen) Transportation Equipment contributed to essentially all of the acceleration (+2.52%) in Advance Real Durable Goods Shipments this month. Real Core Durable Goods, Real Durable Goods excluding Transportation, actually decelerated this month, largely due to the contribution of deceleration in All Other Durable goods (-0.60%) and Electrical Equipment appliances and components (-0.19%). Implications for the Economy Although February's data provided a modest positive surprise, the 3-month and 6-month rates of change have been quite weak, ranking in the 24th and 25th percentile, respectively. Excluding transportation, the data have been even weaker. Indeed, overall conditions in the manufacturing sector in the U.S. economy have been weak during the past 6 months. This is corroborated by the industrial production data and the manufacturing PMIs. Having said that, there has recently been some improvement in the forward-looking components of manufacturing PMIs. Overall, the information in this Advanced Durable Goods report has not altered our U.S. economic outlook. Overall economic activity growth seems to be decelerating from extremely \"hot\" rates to moderate growth that is more in line with historical averages. However, the main concern regarding the U.S. economy is that inflation is too high and accelerating. Persistently weak manufacturing data, including durable goods shipments data, will be cited, with some justification, by those that are arguing that the Fed should start cutting the Fed Funds rate three or more times starting in June. However, there are at least two ways to interpret this data. First, it must be recognized that the manufacturing sector was weak during the 4th quarter of 2024, even when the economy as a whole was booming. Since durable goods shipments, as a whole, have not appreciably weakened in the past three months, this particular data set does not provide any incremental support for cutting interest rates. However, it could also be argued that the durable goods sector is a \"leading\" sector and that it may be signaling future weakness in the economy. Overall, our assessment is that the durable goods shipments data are worrisome, from the point of view of the U.S. manufacturing economy. However, in analyzing the broader macroeconomy, this data would need to be accompanied by other signs of broad economic weakness before raising legitimate concerns about risks of recession. Implications for Financial Markets Today's durable goods data have not altered our overall economic outlook nor our outlook for major asset classes such as bonds and equities. However, the notable weakness in primary metals and in durable goods excluding manufacturing is something that could have implications for cyclical sectors in the U.S. equity market, such as industrials (XLI), basic materials (XLB), and energy (XLE). Cyclical sectors have been doing fairly well as of late, but this could be reversed if concerns about economic growth were to gain momentum. Conclusion  At our Investing Group, we are concerned with accelerating inflation in the context of a significant slowdown in the economy. In our view, macro risks related to both inflation and growth are increasing. This environment is of particular concern for the equity market due to extremely overbought technical readings and extremely bullish sentiment and positioning. While we think that the overall macro environment is currently favorable to equities on a long-term time horizon, we are cautious in the short term.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422459586"}