Growing issues with safety concerns deterred aircraft orders tremendously in January. The decline in durable goods orders can be attributed in part to this, said Chief Economist at FHN Financials, Christopher Low.
Durable goods orders plummeted in January, but there is no need for panic yet.
New orders for manufactured durable goods decreased by 6.1% in January according to the Census Bureau’s report released on Tuesday. The total spending of $294.7 billion in December slowed down to $276.7 billion in January. Although the drop surpassed expectations, much of the reduction was in aircraft sales.
Civilian aircraft orders declined 58.9% amid numerous safety reports and failed inspections on Boeing aircrafts. It appears that when doors are literally flying off of their hinges mid flight, airlines are reluctant to take the risk, says Christopher Low, Chief Economist at FHN Financials.
“Obviously Boeing is having a really tough time and the big drop in aircraft orders took the headline orders rate down,” Low said.
A closer look into aircraft spending shows just how much Boeing underperformed. January is typically a slow month for aircraft orders however, the reported 13,729 new orders is a concerning dip when compared to the 22,909 orders in January a year ago.
Adding to the drop is the Federal Reserve’s decision to keep interest rates at 5.25 to 5.5%. High interest rates impact orders by discouraging consumer and business spending on durable goods.
While the drop surpassed expectations, with other parts of the economy humming along at a positive level in activity, Low says he isn’t worried yet.
“When you strip out defense spending and aircraft spending, other parts of the economy are operating at a decent level of activity. There is still a sign of life,” Low said.
Excluding aircraft, orders actually increased .9%, an increase led by computers and tech related product orders which went up by 5.8%.
Kathy Bostjancic, Senior Vice President and Chief Economist for Nationwide Mutual says it comes at no surprise since many companies rely on technology.
“It’s just so vital in our digital age to continue to invest in computer related goods so that companies don’t lose their competitive advantage against other companies,” Bostjancic said.
Like Low, Bostjancic says she isn’t concerned about the decline and will look to see how the economy responds over the next couple of months.