Capital Goods Orders Contract for Fourth Month in a Row

Real capital goods new orders in February 2015 were $80,244 million. Orders in February 2015 were 2.7% lower than they were one year ago. This is the fourth month in a row that the month-over-month rate of change contracted. At least the rate of contraction has slowed the last two months. This is a very volatile data series. So, while the month-over-month rate of change has contracted for four months, the annual rate of change accelerated in February to the fastest rate of growth since October 2014. This was because of the incredibly storng aerospace orders in July 2014. Without that, the annual rate of change would likely be contracting by now. Therefore, capital goods orders are pointing toward slower capital spending at the moment. 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. 

Month-over-month, motor vehicle and parts new orders have increased the last three months and five of the last six months. The annual rate of change has improved the last three months. Aerospace orders, both commercial and defense, have taken a dive to start 2015. In total, aerospace orders have contracted at a very significant rate month-over-month for six months in a row. The annual rate of change was still growing in February, but this was only because of the July's abnormally large orders mentioned above.

A good leading indicator for real capital goods new orders is real consumer spending. In the last couple of months, the month-ove-month rate of change in real consumer spending, particularly real consumer durable goods spending, has seen accelerating growth. This indicates that real capital goods new orders will return to accelerating growth at some point in 2015.

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