By Orbex

The durable goods orders report for February will be released later today. Economists forecast that core durable goods orders will rise 0.3% on the month, reversing the 0.2% declines from January.

Economists forecast that headline durable goods orders will fall 1.1% on the month in February. In the previous month, durable goods orders rose 0.3%. In January, they were initially reported to have increased by 0.4%, but this was revised down to show a 0.3% increase.

Although the data does not have a big impact on the USD markets, it will certainly bring some volatility to them. The durable goods orders report gives an estimate on the trends in the economy.

The Census Bureau releases the report on a monthly basis. It measures the amount of new long-lasting orders placed with manufacturers.

Durable Goods Orders – Where We Are

Durable goods orders have been steadily rising over the previous few months. Data for January saw the biggest increase since the summer of 2018. Official data released a few weeks ago revealed that orders rose 0.3% in January.

Excluding transportation, orders fell 0.1% due to declines in cars and truck order bookings. The increase in orders came from rising demand for machinery, commercial aircraft, and transportation equipment.

There was a decline of 1% in autos and auto parts and industrial metals and computers.

The core durable goods orders fell 0.2% in January.

Can Durable Goods Orders Maintain the Trend in February?

The data for February which comes out this week has a somewhat mixed forecast. However, there is scope for an upside surprise in the report.

The recent capital goods orders report which feeds into the durable goods orders data rebounded in February. Shipments surged after falling for two consecutive months. The rebound in capital goods tempered speculation about a sharp slowdown in the US economy.

New orders for non-defense spending rose 1.8% in February. The gains were the highest in five months and follow a downward revision to the previous month’s data.

Core capital goods shipments rose 1.4% during February which was the biggest advance since December 2016, according to sources. This followed January’s revision to a 0.1% gain.

Orders for machinery rose 1.6% on the month with demand for new orders increasing in other sectors such as electrical equipment, appliances, and components. Orders for computers continued to fall in February.

The overall surge in capital goods orders could indicate that the durable goods orders report could spring an upside surprise. This comes amid increase in demand for motor vehicle parts which fell 1.6% in January.

Durable Goods and Q1 GDP Forecasts

If the durable goods orders report surprises to the upside, this could mark another month of solid gains in investment and spending. This, in turn, will prompt GDP watchers to raise their expectations for the first quarter GDP figures.

At the time of writing, various GDP tracking tools indicate a median range of 1.3% – 1.7% for Q1 2019. There is a possibility that the expectations will rise on the back of a strong durable goods orders report.

Still, the GDP growth rate for the first quarter will remain weak comparing to the fourth quarter GDP numbers in 2018. The US economy is forecast to grow at a slower pace in the coming months. The Fed has also stopped its plans to hike rates for the remainder of the year.

The central bank has also paused its balance sheet unwinding program as well, due to concerns of weak inflation and slower economic growth.

Trading the Durable Goods Orders Report for February

A surprise to the upside will no doubt see the USD being bid higher. A positive report will keep the USD to the upside as investor concerns of a slowdown or a recession will ease.

The forecasts already signal a negative report. If the actual data does indeed come in negative as expected, the USD is unlikely to see any big moves as investors already discount this news.

By Orbex