By Bethel Habte
The manufactured durable goods industry performed below analyst expectations in December, though the decrease followed a strong year for the manufacturing industry.
According to a report by the U.S. Census Bureau, new orders for durable goods decreased by 0.8 percent to $163.8 billion. That number excludes transportation, a volatile segment of the industry. Industry analysts predicted a median 0.6 percent increase. The Dow tumbled by more than 340 points nearly two hours after the report’s release.
Analysts pointed to a number of factors that could account for December’s numbers, including a stronger U.S. dollar hurting exports and hesitation in the global market.
Excluding defense orders, another notably volatile segment, new orders for capital goods in December decreased $7.9 billion or 9.7 percent to $73.3 billion.
Inventories of durable goods modestly increased $2 billion, or 0.5 percent, to $410.8 billion. This marked the highest level since the metric began in 1992. Shipments of durable goods increased by $2.6 billion following two consecutive monthly decreases.
Kim Chase, senior economist for BBVA Research, said that an “extremely strong” third quarter performance for the durable goods industry made it a tough act to follow.
“It’s hard to get that strength carryover to the fourth quarter,” she said.
After taxes, durable goods manufacturers’ seasonally adjusted profits in the third quarter of 2014 totaled $86.0 billion, up from $77.5 billion in the second quarter of 2014 and $74.8 billion in the third quarter of 2013.
Morningstar Inc. analyst Robert Johnson noted that the industry began to slow in the fourth quarter.
“Last year was a banner year,” he said. “I don’t think things are falling apart on durable goods, but things are softening.”
Though shipments benefited from lower oil prices, oil-related machinery likely suffered, said Jim O’Sullivan, chief economist for High Frequency Economics.
O’Sullivan noted, however, that using December’s figures for durable goods as a canary for the manufacturing industry could be exaggerating weaknesses.
“At the end of the day it’s good to keep in mind to know this is a very volatile market,” he said.
O’Sullivan opts for the Institute for Supply Management’s monthly purchasing managers index to gauge the manufacturing industry. Any number under 50, he said, is cause for concern. ISM’s December reading was 55.5. Though the January 2015 number hasn’t been released, O’Sullivan said he’d be surprised if it were below 50.