Durable Goods Orders Decline

A drop-off in demand for commercial airliners helped drive down orders for U.S.-made durable goods by 10.2% in January, their biggest decline in 5 1/2 years, according to a government report released Friday.

Although the drop was larger than the 1% decline economists had expected, analysts said that excluding transportation orders, the report pointed to strength in factory production ahead.

“Durable goods will continue to lead the manufacturing expansion in 2006,” said Daniel Meckstroth, chief economist for the Manufacturers Alliance/ MAPI. “The United States’ economy is bumping up against capacity constraints in many sectors, and businesses, particularly non-manufacturing businesses, are stepping up investment spending.”

Outside transportation, orders for expensive items built to last three years or longer came in slightly better than expected, up 0.6%, the Commerce Department report showed. That was the third straight monthly gain.

Economists had expected orders excluding transportation to rise 0.5%.

“The headline was a lot weaker than expected, but if you look at the underlying numbers, basically the weakness was entirely in the transportation sector and relates to a drop in Boeing orders,” said Ronald Simpson, managing director of global currency analysis at Action Economics in Dobbs Ferry, N.Y.

December orders were revised up to a 2.5% gain from the originally reported 1.3% advance.

January’s steep drop in the volatile durable goods measure was driven by declines in both transportation equipment and capital goods orders, the report showed.

New orders for transportation equipment slid 31.2% as motor vehicles and parts orders fell 3.3% and defense aircraft and parts fell 22%.

Non-defense aircraft and parts orders plunged 68.2%, the biggest drop since an 80.1% decline in December 1998, the department said.

Analysts said that was because of a decrease in orders for Boeing Co. jetliners. The aerospace company said commercial aircraft orders fell to a three-month low of 39 in January, down from 204 in December.

“After the huge orders that were placed in December, I think it’s quite reasonable to expect that there would be a shortage of them in January,” said Paul Nisbet, an aerospace analyst at JSA Research.

“We aren’t going to see the level of orders this year that we did last year. That was an extremely unusual year,” he said. “The airlines just acted like lemmings, wanting to get in there for the earlier delivery slots when they saw them disappearing, so they all jumped in at once.

“We’ll probably have orders that may be no more than half of what we had last year,” Nisbet added.

Capital goods orders tumbled 23.1%, the biggest slide since July 2000, on a record 20% decline in non-defense capital goods orders and a 64.3% fall in defense capital goods orders.

Non-defense capital goods orders excluding aircraft, seen on Wall Street as a proxy for business spending, edged down 0.4%, the report showed.

Unfilled orders, which can signal future strength of factory production, fell 0.8%, the largest drop since a decline of 1.2% in October 2002.