According to the Commerce Department's release moments ago, orders for U.S.-made durable goods dropped for a third straight month in October, shedding 0.4%. According to a survey of economists conducted by MarketWatch expectations were calling for a drop of 0.1%. At first glance, the drop doesn't seem all that bad, but digging into the numbers a bit reveals that the report is worse than it appears. Orders for defense capital goods increased by 16.1%, which was led by heavy demand for military ships. Excluding the massive increase in orders for defense goods, orders dropped 0.9%. Demand for core capital investment goods fell 2.3%, which was the biggest drop since February.

Will this report have any impact on the Fed's rate-cut decision in 2 weeks? Most experts doubt it, as Fed policymakers are not likely to overreact to 1 or 2 months' worth of numbers as the durable goods report is notoriously volatile. The problem is that capital spending by businesses was supposed to compensate for the growth lost from the shrinking housing market, and that didn't happen. What will the market's reaction be? Well, it seems that comments from Fed Vice Chairman Donald Kohn noting that the central bank can be nimble and can't hold the economy hostage to teach speculators lessons, have calmed investors a bit and are a major reason that futures are pointed higher.