MasTec, Inc. (MTZ) is a multinational infrastructure engineering and construction company based in C...
Durables disappoint but order backlogs rise so no big worry--yet
10/27/2010 2:30 pm EST
I don’t have to make that argument today. The headline number for durable orders (durable goods are things that last a while such as airplanes, trucks, and production equipment) for September released today, October 27, showed a big jump to 3.3% growth. Most of that, though was due to a huge 72.4% pop in airplane orders in the month.
So today I get to make the opposite argument. The headline number isn’t as important as the 0.8% drop in durable orders minus transportation. Orders for nondefense capital goods, the stuff that companies buy so they can produce more stuff, fell by 0.6%.
The market clearly didn’t like this data. At 11:30 in New York the Standard & Poor’s 500 index was down 0.8% and the Dow Industrial Average was down 1%. There’s no reason that investors should like these numbers. Economists were expecting a 0.2% increase in durable orders excluding transportation.
But how significant is that disappointment in the long run? (You know like a week or so.)
The drop in capital goods orders is worth noting. Growth in capital goods orders has been one factor leading me to believe that the economy is actually in better shape than many investors believe. Businesses don’t order equipment to expand production unless they expect that orders will increase. One month’s drop here isn’t a huge deal but this needs watching. A downward trend would be worrying.
The durable orders numbers without transportation don’t raise red flags at the moment. The growth in this number in recent months has created a big backlog of orders that will sustain growth in manufacturing even if new orders slow for a month or two. According to Briefing.com, backlog actually climbed by 0.6% in September even as new orders slowed.
My take? I certainly understand why the markets don’t like September’s data, but I’m not going to worry too much until I see a negative trend over a few months.
Related Articles on STOCKS
Neil Macneale is the editor of 2-for-1 Stock Split Newsletter, a speciality advisory service in whic...
The $1 trillion market cap reached by Apple (AAPL) is an intimidating number, and might make you won...
We hold LightPath Technologies (LPTH) starting at $1.40-$1.60 in January 2017 and suggest long-term ...