Aircrafts Industry: Investment Remains Strong

In March, the aircraft industry weighted on overall new orders for durable goods. However, core capital goods orders were up 0.2% when transportation is excluded. The report confirms that the U.S. economy ended Q1 on a slower pace than the kick-off. However, the slowdown is far less pronounced than spelled out by retail sales and employment data

After a strong monthly increase in February (4.3%), new orders of durable goods suffered a setback in March with a 5.7% decline over the month. The primary culprit was the aircraft industry, the orders of which declined 43.5% after a 65% jump in February. Excluding transportation, new orders of durable goods were, also down (-1.4%), which left the 3-month annualised pace of growth at a healthy rate of 9.6%

Shipments were also more solid, increasing by 0.4% in March. In 2013 Q1, they were up an annualised 3.9%, slightly above the 2012 Q4 performance (+3.0%).

As for inventories and unfilled orders, both lead to expect stronger production ahead as order books are still on the rise - while the level of inventory remains limited. Unfilled orders were up 2.9% in March on a 3-month annualised basis, accelerating from +0.4% in December while the inventory to shipment ratio fell to 1.64 (down from 1.65 in January).

The durable goods industry report differs slightly from the already released set of data for March, as it does not highlight a marked slowdown, even though it confirms that 2013 Q1 finished on a softer tone than it began.

What usually catches the attention in today’s report is the set of data for the non-defence capital goods which excludes the aircraft industry. Its shipments and new orders are rather good coincident and leading indicators of business investment. Today’s data confirmed that 2013 Q1 was a strong quarter, with shipments up an annualised 4.1% (versus 5.1% in Q4 2012,) and new orders 16.7% (versus 20.4% in Q4 2012).

On Friday, the advance estimate for 2013 Q1 GDP growth is to be published. It should highlight the business sector as a major contributor to growth, as we expect the inventory change to have contributed positively and business investment in equipment and software to have remained as firm as in end-2012. An above 3% (annualised rate) reading for the overall GDP growth is not unlikely.

BY Alexandra ESTIOT

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