Commentary Directory

US Durable Goods Orders: February 2024

Jacob Hess
March 26, 2024

Durable goods orders in the US jumped 1.4% MoM in February following the sharp -6.9% MoM decline in durable goods orders in January (revised down from 6.1% MoM). The increase topped consensus expectations of 1.0% MoM and even my own expectations of a 1.2% MoM increase. Ex transport durable goods orders saw a moderate increase of 0.5 MoM and was boosted by strong demand shown in the machinery and primary metals industries where new orders were boosted 1.9% MoM and 1.4% MoM respectively. The transportation component did recover from the January dip but is still down about -15.7% from December but has settled closer the 2022 and early 2023 average.

The key core capital goods segment (nondefense capital goods excluding aircraft) increased 0.7% MoM after declines of -0.4% MoM in January and -0.6% MoM in December. This brought the annual change from -0.4% YoY at the start of 2024 to 0.5% YoY in February. Over the past two years, the growth in core capital orders has come to a halt as financing costs saw a rapid rise as a result of the Fed's fight against inflation. Since the start of Q3 2023, they have risen just 1.6%, stopping the post-pandemic recovery that came about as supply chains healed and COVID restrictions were lifted across the globe. While monetary policy has been efficient in combatting the increase in durable goods demand, fiscal policy supported by the CHIPS Act and infrastructure spending has stimulated both the supply and demand side. On a YoY basis, shipments were a bit stronger through 2022 and 2023 as a result of this and still hold a minor lead in 2024.

The strong rebound in February and moderate core capital goods gain suggests that companies are likely maintaining their expectations for Fed rate cuts later this year as well as rate cuts in other parts of the world. While the Fed kept rates unchanged in March, 38% of central banks' last move was a rate cut which is up from 17% in March 2023, and expectations are that this percentage will continue to increase in 2024. This should brighten the outlook for 2024, but a trend of stronger growth unlikely to be established until those cuts are realized.