Capital Goods New Orders Contract for Second Month

According to the Census Bureau, real capital goods new orders in December 2014 were $106,415 million. Orders in December 2014 were 6.9% lower than they were in December 2013. This is the second month in a row of greater than 6% month-over-month contraction. The last time there was two months in a row of contraction was May and June 2014. While this is a very volatile data series, the annual rate of change does seem to be a decelerating growth mode. The annual of growth has fallen to 5.4% from 8.6% in July. The trend of decelerating growth does appear that it will continue for at least the next couple of months. 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 there will be further deceleation in the rate of growth of capital goods new orders.

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