Durable Goods Ordered Down Again, Yet Stocks Move Higher

 
News reports abound on April 24, 2009 about another decline in durable goods' orders. One stated, "The deep recession in manufacturing worsened in March, as demand for U.S.-made durable goods fell 0.8%, the seventh decline in the past eight months, the Commerce Department estimated Friday."

And, if that's not gloomy enough, how about this, "New orders in the first quarter were down 27% compared with the first three months of 2008."

So, why on earth is the stock market heading higher on this news?

You've got to dig deeper and look at the report compared with expectations and look at the details on the numbers which Brian Wesbury and Robert Stein, Economists at First Trust do for us. Here are their key insights:

"New orders for durable goods declined 0.8% in March versus a consensus expected -1.6%. Excluding transportation, orders declined 0.6% versus a consensus expected -1.2%."

So, the decline was only about half what had been expected. That's good news not bad news.

"The most important detail in today's report is that in the past two months orders for ‘core' capital goods (excluding defense and aircraft) have grown at a 41% annual rate while shipments of core capital goods have dropped at a 9.5% rate. This goes a long way toward unwinding the huge decline in the orders/shipments ratio in late 2008 and January 2009 and will help clear the way for an eventual revival in shipments."

That's even better news. Orders are growing much faster than shipments, a trend which bodes well for future shipments and economic growth.