Order for durable goods fell in December for the first time in three months. Bookings for durable goods, or items that can last at least three years, dropped 0.9 percent from November, showing a drop in orders for commercial aircraft and communications equipment. At the same time, orders for November were revised to show up to a 3.2 percent gain.
The value of core capital goods orders, which is a proxy for business investment in equipment (excluding aircraft and military hardware) was changed after claiming a revised 0.3 percent in the prior month, according to Department of Commerce figures. This estimate in a Bloomberg survey of economists called for a 0.4 percent increase in core capital goods orders and a 0.6 percent decline in durable bookings. Total orders in November were revised from a 2.6 percent gain.
The data suggest that the supply chain constraints and labor shortages tempered business investment growth by the end of the fourth quarter. Higher borrowing costs also happen as the Federal Reserve tightens its monetary policy, risking more capital spending plans in the long term.
Other reports also showed the outlays for business equipment, which rose to an annualized 0.8 percent in the fourth quarter after a 2.3 percent decline. The first estimate of the period's gross domestic product also accelerated from the third quarter, following more inventory investment.
Durables report also showed that bookings for commercial aircraft decreased 14.4 percent, with Boeing Co. reporting only 80 orders in December, down from 109 the previous month. (Related: Survey finds most global CEOs expect inflation to last through 2023 and beyond.)
Orders for motor vehicles, however, rose 1.4 percent in December, while other durable goods orders excluding transportation equipment increased 0.4 percent.
In less volatile categories, however, reports are mixed: orders increased for metals and computers, but booking declined for electrical equipment and machinery. Unfilled orders for manufactured durable goods, which measures backlogs, rose 0.5 percent, but inventories increased 0.7 percent.
Orders for defense capital goods declined 28.4 percent, while total durable goods bookings (excluding military equipment) increased 0.1 percent. (Related: The dollar has entered a death spiral, and a lot more inflation is on the way.)
Showing the big picture
Manufacturing remained strong with high demand despite the bottlenecks in the supply chain. While some believe that the omicron variant may be behind some of the weakness in December, actual evidence remains thin: economists still expect manufacturers to make progress with issues over the coming year.
The outlook is for continued growth, as sustained upward pressure on prices continues and demand outpaces supply. The Federal Reserve is now moving to hike interest rates beginning in March and is planning to take action to reduce its holding of fixed income securities, which could lead to higher short-term and long-term interest rates, thereby reducing demand and eventually loosening the labor market, easing pressure on prices.
However, the risk of policy mistakes rises during the tightening cycles. With 2022 being a Congressional election year, intensely bitter partisanship and a divided populace could lead to turmoil as confidence in the election results come under attack.
Meanwhile, data showed that consumer prices climbed 7.1 percent in December compared to the previous year, and this is the fastest annual pace in four decades, as per the Bloomberg survey median forecast. While this may prove to be a high-water mark, forces that have driven up inflation during the pandemic are expected to weaken over the year.
It is unlikely for there to be a repeat of the lockdown-era splurge on goods, and key commodities like oil are already off the pandemic high prices, and the Federal Reserve is hitting the monetary-policy breaks and statistical quirks that will tip the scales toward lower inflation prints.
This is why most economists project inflation to slow to less than three percent by the end of 2022: however, it is important to note that they expected price pressures to have already been contained last year, failing to anticipate the pandemic price spike.
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