Capital Goods Orders Contract for First Time Since June

According to the Census Bureau, real capital goods new orders in September 2014 were $99,111 million. Orders in September 2014 were 0.2% lower than they were in September 2013. This was third time in five months that the monthly rate of change has contracted. The annual rate of change decelerated for the second month in a row to 7.3%, but it should accelerate faster over the next couple of months at least as the quarterly rate of change is above 25.0%.

This leading indicator is positive once again for future capital spending. Total capital goods new orders tend to lead industrial production by three months and capital spending by 18 months on average based on long-term historical correlations. 

A good leading indicator for real capital goods new orders is real consumer spending. Since October 2013, the annual rate of change in real consumer spending has been virtually unchanged. Unless the rate of growth in real consumer spending accelerates it is likely that further accelerating growth in capital goods new orders will be limited.

We use real capital goods new orders to forecast activity in metalcutting job shops, metalworking, and durable goods.