Capital Goods Orders Increase 4.7% in October

According to the Census Bureau, real capital goods new orders in October 2014 were $86,118 million. Orders in October 2014 were 4.7% higher than they were in October 2013. After contracting the three out of five months, orders have grown for the last four months. The annual rate of change accelerated to 7.9%, but it is still slightly below the peak rate of growth from a few months ago.

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.