skip navigation

Stay up to date on timely topics and market events. Subscribe to our Blog now.

22 November 2023

Durables Orders Drifting, Real CAPEX Orders Drift Lower

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

New orders for durable manufactured goods declined by -5.4% in October, with the September orders estimate revised down by a substantial -0.5%. Usually when durables orders swing down or up by such a large magnitude in one month, the swing is dominated by downs or ups in aircraft orders. This was indeed the case with today’s release, with orders for nondefense aircraft plunging 50%.

Net of aircraft and other transportation equipment, durables orders were unchanged in October from a September estimate that was revised down by -0.3%. This is not a strong showing, but it is not as decidedly weak as the headline number would suggest.

Exhibit 1: Estimated Real Orders for Nondefense Capital Goods
Explore Estimated Real Orders for Nondefense Capital Goods
Source: Census Bureau, BEA. As of 31 Oct 23. Select the image to expand the view.

As for the aircraft sector, the October decline merely offset a similarly sized September increase. Thus, the October orders level for aircraft is largely in line with prevailing levels of this year. The September orders spike was preceded by an even larger gain in June. Aircraft orders tend to come in “lumpy,” such as we have seen this year. Such order spikes are then filled over the next few years in a smoother manner.

Actual shipments of nondefense aircraft have been trending lower over the last five months, presumably still reflecting a dearth of orders during the pandemic years. This year’s spikes in aircraft orders will help steady actual aircraft production (and shipments), but likely not for a while yet.

An important component of durables orders (ex. transportation equipment) is orders for nondefense capital goods excluding aircraft. That aggregate showed a slight, -0.1% decline in October, though the September estimate was revised substantially lower, by -0.6%. The accompanying chart shows our estimates of real orders for nondefense, non-aircraft capital goods, as well as repeating the aforementioned data for aircraft. (While prices for most goods in the US are declining, those for equipment are still rising slightly, thus we’re seeing a somewhat larger October decline for real CAPEX orders than was indicated by the -0.1% drop in nominal data.)

As you can see, these have been declining substantially for the last 14 months, as higher interest rates have cut down domestic demand for new equipment and as economic growth has foundered abroad. The Fed’s hiking regime has not (as yet) sunk the overall economy, but there have been pockets of response to the higher rates, and equipment investment has been one of them.

We should remark that investment in high-tech equipment continues to hold up relatively well, and as we have reported previously, the surge in the last year of construction of new manufacturing plants has held up business investment in structures. Still, there are pockets of softness within business capital spending, and investment in “traditional” equipment has been one of those areas.

Indeed, the manufacturing sector in general has been in a state of modest decline for the past year plus, and the ongoing flat trend in overall durable goods attests to this. Manufacturing output is not declining dramatically, as it would during a full-blown recession. However, the rebound in factory output we saw coming out of the pandemic ceased around May of last year, at least it did for the 90% of US manufacturing not involved in high-tech or motor vehicles.

We are closing in on 10 years of producing these posts. Thanks to all our readers for following our commentary, and a most Happy Thanksgiving and gratitude to everyone in our global community.

© Western Asset Management Company, LLC 2024. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.