Bad News For Durable Goods

Durable goods orders in October plummeted by more than double market expectations, pointing to a deep decline in the economy in the fourth quarter. Durable goods orders dropped 6.2 percent in October, following a 0.2 percent decline in September. The fall in the latest month was far worse than the market forecast for a 2.6 percent decrease. Excluding the transportation component, new orders fell 4.4 percent, after declining 2.3 percent the month before. The consensus had forecast a 1.5 percent contraction.The drop in October was led by transportation and primary metals, which fell 11.1 percent and 12.6 percent, respectively. Declines for the latest month were widespread – every major industry group fell in October. The credit crunch and gloomy economic outlook have hit business investment. The outlook for capital equipment spending is not good as nondefense capital goods orders declined 3.6 percent after a 1.0 percent decrease in September.Year-on-year, new orders for durable goods worsened to down 10.6 percent in October from down 4.6 percent the previous month. The decrease in the October headline number indicates that the current contraction may be worse than many have built in.