Highlights
The manufacturing sector weakened in January based on a sizeable drop in new orders for durable goods - even after discounting for the usual volatile components. Durable goods orders fell 7.8 percent in January, following a 2.8 percent boost in December. January's figure was sharply below the consensus forecast for a 3.0 percent drop in new durables orders. The January decline was led by a drop in the transportation component. Excluding the volatile transportation component, new orders still fell 3.1 percent, following a 2.6 percent advance in December. Separately, excluding the also volatile defense component, new orders dropped 7.8 in January after a 4.0 percent jump in December. Overall, today's report shows a slowing in manufacturing.

Within transportation, weakness was led by aircraft - nondefense and defense. Civilian aircraft orders dropped a monthly 60.3 percent, following a 31.3 percent increase in December. Orders for defense aircraft fell 54.6 percent in January, following a 16.5 percent rise the prior month. New orders for motor vehicles declined 5.1 percent in January, following a 5.3 percent increase in December.

Weakness in orders in December was widespread. Industry categories showing declines in January were primary metals, down 1.5 percent; machinery, down 9.3 percent; computers & electronics, down 7.8 percent; transportation, down 18.0 percent; and "all other," down 1.3 percent.

Industry categories posting gains in January were fabricated metal products, up 1.4 percent, and electrical equipment, up 7.9 percent.

There are signs that business investment in equipment may be slowing. Nondefense capital goods orders fell 19.9 in January, following a 10.5 percent boost in December. Even excluding aircraft, nondefense capital goods orders fell 6.0 percent, following a 3.6 percent increase in December.

Overall inventories rose 0.3 percent in January, following a 0.7 percent increase in December. Overall shipments increased 0.2 percent in January while unfilled orders edged up 0.1 percent. Turning to a key input into the business equipment component of GDP, shipments of non-defense capital goods fell 1.4 percent in January after a 0.9 percent decline in December.

Year-on-year, new orders for durable goods slipped to up 2.1 percent from up 2.3 percent in December. Unfilled durables orders edged up to up 21.0 percent year-on-year in January from up 20.5 percent the prior month.

Overall, today's report shows a continued slowing in manufacturing and in industries outside of autos. The data are indicating that overall GDP is well likely to come in below potential, meeting the Fed's goal for bringing inflation down. This is good for the bond markets but equity markets may be facing the reality of weaker earnings than previously anticipated.

2007 Release Schedule

Released On: 1/26 2/27 3/28 4/25 5/24 6/27 7/26 8/24 9/26 10/25 11/28 12/27 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov