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February 27, 2025

Durable goods orders rebounded a solid 3.1% in January following two consecutive large declines in November and December.  The January rise beat consensus expectations for a 2.0% gain.  The headline increase was driven entirely by a jump in aircraft orders. Orders at Boeing surged on the heels of very weak orders in December when it experienced a large number of cancellations (135). Excluding transportation, durable goods orders were flat. Importantly, orders for nondefense capital goods excluding aircraft increased a solid 0.8% in January and have risen at a robust 7.7% annualized pace over the past three months. With the possibility that some or much of this strength reflects an attempt to beat tariff-related price increases, it may not last too far into 2025.

Within transportation, nondefense aircraft orders jumped 94%, as Boeing’s net orders rose from seven aircraft in December to a more normal 36 in January.  Defense aircraft orders rose slightly to extend a growth streak to four months.

On the other hand, orders for motor vehicles and parts plunged 2.5% in January, the fourth consecutive monthly decline; the vehicle industry saw a sharp drop in sales to below 16 million units (seasonally adjusted annual rate) in January. That drop followed three months of solid increases in sales, driven in part by replacement demand.  Notably, the recent sharp downturn in consumer sentiment suggests weakness ahead in light vehicle sales.  However, given the potential for a significant increase in vehicle prices as a result of impending tariffs, consumers who are still in the market may pull ahead those purchases to beat the price increases. So, don’t be surprised by a near-term bump and volatility ahead.

Other sectors showed mixed results. Computers and electronic products increased a solid 1.7%, boosted by a whopping 7.1% jump in computer orders.  Communications equipment rose 0.6%, the third consecutive gain, helped by a surge in corporate mobile phone replacements. Primary metals orders rose 1% to the highest level since June of 2023. Fabricated metals orders fell, continuing an uneven downward trend since last October.  Machinery orders also moved higher, the fourth consecutive rise.

Orders for nondefense capital goods excluding aircraft increased a solid 0.8% in January and have risen at a robust 7.7% annualized pace over the past three months. Nondefense capital goods shipments excluding aircraft, fell 0.3% in January after rising the prior three months.  The three-month annualized increase remained positive at 0.9%. Given that elevated policy uncertainty may depress business spending plans this year, and that efforts to front-run tariff-related price increases may have boosted orders of late, we want to be careful not to extrapolate the recent strength throughout 2025.

Durable goods inventories eked out a 0.1% rise following strong gains in November and December.  Unfilled orders rose 0.2% in January, continuing a slow upward trend. Excluding transportation, unfilled orders rose 0.1%, the eighth consecutive monthly increase.

Separately, the S&P Global purchasing managers' index (PMI) flash estimate for February rose to an eight-month high of 51.6, versus 51.2 in January. Manufacturing output reached an eleven-month high of 53.8. Readings above 50 signal expansionary conditions. Combined with today’s durable goods orders report, these data suggest the manufacturing sector is entering 2025 with at least modest positive momentum.