U.S. Economic Brief || Durable goods orders soften in February, driven by decline in aircraft orders

Durable goods orders soften in February, driven by decline in aircraft orders

*Durable goods orders fell 2.2% m/m in February, driven primarily by a sharp decline in new orders for non-defense aircraft and parts, although February’s durable goods report did exhibit broader weakness, with durable goods orders declining in the primary metals, machinery, and fabricated metal products industries (Chart 1). We expect durable goods orders to remain elevated, particularly in the motor vehicle and parts industry, reflecting the need for businesses to replenish inventories depleted over the pandemic and to meet solid but moderating demand for durable goods. New orders are 17.6% higher than their level in February 2020; sustained increases in unfilled orders and brimming order books point to robust activity in the manufacturing sector.

*Orders for non-defense capital goods excluding aircraft, a gauge of underlying manufacturing demand, ticked down 0.3% m/m following an upwardly revised 1.3% m/m increase in January and have increased 11% yr/yr and 5.8% on a three-month annualized basis, pointing to a healthy underlying trend despite the softer print in February (Chart 2).

*Shipments were flat in February but ticked up 0.2% m/m excluding transportation, reflecting a 0.8% m/m decline in motor vehicle and parts shipments (Chart 3). Ongoing semiconductor, parts, and labor shortages continue to constrain motor vehicle production, and domestic vehicle assemblies are well below their pre-pandemic levels. Shipments of non-defense capital goods excluding aircraft ticked up 0.5% m/m and have increased in twelve consecutive months and, with unfilled orders up 11.4%, are poised to remain strong in the coming months.

*Unfilled orders increased 0.4% m/m, lifting them above their pre-pandemic level and have increased for twelve consecutive months, reflecting supply chain disruptions and strong durable goods demand (Chart 4). Anecdotal evidence suggests these bottlenecks are yet to ease meaningfully, and although there is considerable uncertainty around the time frame within which supply chains are expected to normalize, risks are skewed toward a more elongated resolution to supply side disruptions. The jump in COVID-19 cases in China and the imposition of lockdowns in key manufacturing and trade hubs could exacerbate production delays and shortages, while Russia’s invasion of Ukraine has contributed to a spike in commodity prices, and a “shut-in” of Russian commodity exports would likewise weigh on production and durable goods shipments.

*New orders for nondefense aircraft and parts declined $5.8 billion in February, accounting for the bulk of the monthly decline in new orders, while spending on defense aircraft and parts edged up. Further increases in defense spending over the next year are likely as part of the reaction to ongoing geopolitical tensions.

Chart 1. Durable Goods Orders

Chart 2. Nondefense Capital Goods ex. Aircraft Orders

Chart 3. Durable Goods Shipments

Chart 4. Unfilled Orders – Durable Goods vs. Motor Vehicles & Parts

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

© 2022 Berenberg Capital Markets, LLC, Member FINRA and SPIC

Remarks regarding foreign investors. The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. Copyright BCM is a wholly owned subsidiary of Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”). BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the BCM’s prior written consent. Berenberg Bank may distribute this commentary on a third party basis to its customers.

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.