New orders last month for long lasting manufacturing goods turned in the highest increase in 10 months, soothing the fears of an impending recession.
Durable goods for January rose to 4.9 percent after a steep decline of 4.6 percent in December. The increase exceeded most economist’ expectation who guessed the median increase to be 2.6 percent, according to the Bloomberg survey.
“The increase was bigger than the forecast we made but I wasn’t shocked,” said Michael Moran, chief economist at Daiwa Capital Markets. “I thought the weakness we saw in the previous month might have been the normal volatility rather than genuine underlying weakness.”
The increase was generally broad-based, with volatile sectors like transportation increasing to 11.5 percent and non-defense aircraft to 54.2 percent, according to Department of Commerce. These sectors were significantly down in December’s report.
The drop in aircraft orders in December was surprising to many since Boeing had received an increase in aircraft orders, and so the fact they did well in January was anticipated.
“Increase in aircrafts which after two consecutive months of decline for aircrafts that was not surprising, there’s always significant monthly swings there,” said Kim Chase, economist at BBVA Research.
Orders of core-capital goods, which are important for measuring business spending and thereby confidence in the economy, increased 3.9 percent. This was a positive increase from December’s minus 3.7 percent. These goods include orders for all nonmilitary capital goods with the exception of aircrafts.
Despite such an increase, the core-capital goods are still down 4.4 percent compared to January 2015. And many economists feel that while this report shows that the economy is moving in the right direction, it is slow growing.
“I wouldn’t characterize this as a strong report,” said Moran. “What you see is recently it’s a sideways movement, a flat trend.”
The possibility of a flat trend is supported by other disappointing indicators including the ISM and the Fed, which show no improvement in the already weak manufacturing sector.
So in the face of such conflicting reports, economists believe that the Fed will not make a move to increase interest rates.
“The Fed won’t do anything in March this year,” Moran said when talking about increasing interest rates. “The outlook is too uncertain and the economy not strong enough. I think they will move it again before the end of the year but not in March.”