US: Durable goods orders point to healthy Q3 equipment investment – Nomura

US durable goods orders increased 2.2% m-o-m in September (Nomura and Consensus: 1.0%) and excluding volatile transportation equipment, new orders rose 0.7% m-o-m (Nomura: 1.0%, Consensus: 0.5%), implying strong growth in industrial activity, notes the research team at Nomura. 

Key Quotes

“A strong jump (+31.5%) in nondefense aircraft orders drove the upside surprise in total durable goods orders. New orders of autos and auto parts increased only modestly by 0.1%, implying that a temporary surge in demand for replacement vehicles may not lead to a notable acceleration in auto production. Strength in ex-transportation durable goods orders was driven by communications equipment and fabricated metal product orders.” 

“Solid gains in core capital goods shipments and orders (non-defense capital goods excluding aircraft) with upward revisions to prior months point to healthy equipment investment in the current quarter and strong momentum. Core capital goods shipments, an indicator of current equipment investment, rose 0.7%. Core capital goods orders increased a solid 1.3%, implying healthy momentum in coming months. Regional Feds’ planned capex indices also point to continuing growth in equipment investment.”

“Overall, it appears that the impact from the hurricanes has largely waned. In particular, durable goods inventories rose 0.6% with upward revisions to prior months. Although storms tend to depress inventory accumulation, growth in manufacturers’ inventories remained resilient during Q3. The Census Bureau reported no major disruptions to data collection caused by the recent hurricanes.”

“The strong readings in core orders and shipments appear consistent with our expectations for solid gains in business equipment investment in Q3 and better momentum in Q4.”