Defense Fuels US Durable Good Surge But Outlook Muddled

Orders for defense aircraft propelled an unexpected jump for American-made manufactured goods in December, according to government data released Tuesday, but analysts warn of underlying weakness.

The 2.4 percent increase in orders for durable goods compared to November, seasonally adjusted, was well above forecasts and good news for US manufacturing, which is in the midst of a recession, battered by trade wars.

But for the full year, new orders fell by 1.5 percent in 2019 compared to 2018, without seasonal adjustment, according to the Commerce Department report.

The rebound in new orders last month comes after a dismal November in which orders for big-ticket items like cars, airplanes and appliances dropped 3.1 percent, according revised data.

But the December growth was fueled primarily by defense aircraft, new orders of which climbed 168.3 percent compared to November to their strongest posting since March 2015, even as actual shipments fell by 8.7 percent.

Excluding defense, new orders fell by 2.5 percent, Commerce said.

Reversing the November decline, orders for transportation equipment reached $82.9 billion, an increase of 7.6 percent.

But that was still a 4.9 percent below the same month in 2018, and analysts warned that December's gains may fall away.

"The headline jump is noise," Ian Shepherdson, chief economist at Pantheon Macroeconomics said in an analysis.

Noting that the report provides few details of which orders fueled the defense aircraft rise, Shepherdson predicted that figure could reverse, while pointing to the fall in non-defense orders as a deeper sign of weakness.

Rubeela Farooqi of High Frequency Economics cautioned that "The data are volatile," but nevertheless "trends have slowed significantly since late last year."

While shipments of big-ticket goods rose by 0.9 percent last year, shipments in the December slipped 0.2 percent compared to the previous month.