- U.S. durable goods orders grew by 1.0% M/M in September.
- Excluding transportation, orders rose by a slightly more modest 0.9% M/M, while core capital goods orders rose by a robust 2.0% M/M.
- Overall, the pick-up in orders suggests some organic momentum in U.S. business capital expenditures.

U.S. durable goods orders rose by 1.0% M/M, undoing some of the 2.6% M/M drop recorded in August and marked the fourth monthly gain in this indicator in six months. The increase was inline with the market consensus, but was below our more optimistic call for a 1.5% M/M gain. Excluding transportation, orders rose by 0.9% M/M, while core capital goods orders, which exclude transportation and defence orders, rose by a more profound 2.0% M/M. This suggests to us that outside of the volatile defence and transportation components, U.S. capital orders posted robust growth in September, and the 3-month annualised pace of growth stands at 11.2%, though this is down from the 18.3% posted in August. Despite the recent gains, orders remain 17.4% below their year-ago levels, while core orders are down a less extreme 15.6% on their September 2008 levels.

Looking at the details of the report, there were strong gains in orders for defense goods, which rose a sharp 10.0% M/M, while transportation order rose 1.1% M/M. Core capital orders was bolstered in large part by the 7.9% M/M surge in orders for machinery, which is the biggest monthly gain in this indicator in over a year and was the fifth monthly increase in six months. This, if anything, suggests that U.S. businesses are beginning to slowly rebuild their capital stock in anticipation of the rebound in demand for their products.
Orders for primary metals (up 0.3% M/M) were also up, while orders for electrical equipment (down 0.9% M/M) and computers and electronic (down 0.2% M/M) were lower. And with shipments rising by 0.8% M/M and inventories declining by 1.0% M/M, the inventory to shipment ratio dropped to 1.77 from 1.80 and is now at its lowest level since November last year.

Overall, while the print on the headline number was inline with the market consensus, the strength in core capital goods orders, and in particular the sustained growth in machinery orders, offer a very encouraging glimpse on the state of business expenditures in the U.S.