Durable Goods Orders Surge 5.1% for Month

A surge in demand for aircraft and parts boosted orders for durable goods by a surprisingly strong 5.1% in November, the biggest gain this year, the Commerce Department said Friday.

Aircraft orders accounted for about 40% of the increase, but there were also smaller increases across several other broad categories of goods.

However, because the figure is considered volatile and subject to significant revision, some money market economists said it would not necessarily discourage the Federal Reserve from pursuing a policy of easier credit.

For instance, a reported drop in the October order rate was revised from 1.3% to 0.7%.

But other economists said the November report, showing gains not only in orders but also in shipments and backlogs, might ease some of the concerns about the weakness in the manufacturing sector.

Even excluding defense orders, durable goods orders were up 4.2% after a 0.1% increase in October. And orders for goods outside the transportation sector rose 3.1% in November after falling 1.7% in October, suggesting strength across the board.

“This confirms our belief that the fourth-quarter weakness should be temporary,” said David Wyss, chief economist with DRI/McGraw Hill Inc. in Lexington, Mass. “It should be bouncing back up in the first half.”

The overall 5.1% rise in durable goods, items built to last three years or more, was the largest monthly increase since a 7.4% gain in December, 1988, department officials said.

Analysts had forecast that durable goods orders would be unchanged from October levels.

“With a number as volatile as this, I can’t think this will stop” the Fed from continuing on its course, said chief economist Alan Leslie at Discount Corp.

“If this (strong durable goods) trend should continue, there is the question as to whether deceleration in manufacturing has bottomed out,” said senior analyst Jan Neupauer at Chase Securities. “But one month’s data is not something you want to hang your hat on.”

The Fed on Wednesday engineered a drop in the key federal funds rate to 8.25%, and the markets have been expecting the central bank to ease the rate to around 8% early in the new year.