US durable goods orders grows in January, equipment investment likely to rebound

The US recorded a growth of 4.9% m/m in durable goods orders in January on a solid recovery in the volatile aircraft component. However, the details of the report bode well for equipment investment in Q1. Also it should help suppress fears that the US economy is moving towards a recession.  The risks to the projected Q1 GDP growth of around 2.5% annualised are now on the upside.

Non-defence aircraft orders for January increased 54.2% m/m, as compared with the 29.1% m/m decline in December. This was a bit weaker than projections. Meanwhile, orders for motor vehicles grew by 3% m/m after a 0.2% m/m increase in December. The gains in orders were extended beyond transportation. Core orders recovered a strong 1.8% m/m, as compared with the 0.7% m/m drop in December.

Non-defence capital goods shipments declined 0.4% on a monthly basis in January, bringing the three-month- on three-month annualised growth rate to -4.2% from -4.7%, which is still weak. Meanwhile, orders in the same category increased 3.9% m/m, the highest increase since June 2014. Capital goods shipments have been moving broadly sideways since 2012. In spite of this, real equipment investment has grown.

"The upshot is that equipment investment appears to be back on the right track after falling in the final quarter of last year. With consumer spending also set to accelerate, GDP growth should be between 2.5% and 3.0% in the first half of the year", says Capital Economics.