Wednesday, April 25, 2007

Boeing, Boeing - Bong

Yesterday's data on March durable goods orders were "higher than expected" (+3.4% vs. February). Unfortunately, as the title implies, the strength comes almost solely on the heels of aircraft orders. See the charts below for a more sober look.

Doesn't look so hot, does it? The YoY graph looks even worse, with February and March coming in negative.

Why do I subtract aircraft orders?

a) It is a volatile data series, fluctuating widely month to month as new high-ticket orders are booked (or not).
b) Such orders are heavily influenced by the value of the US dollar. For example, right now Airbus is losing orders due to the high euro.
c) Aircraft orders are very cyclical and lag the economy. Airlines don't order planes until they are certain they need them, typically at the top of the cycle when load factors are very high. It takes many months to decide on a model, agree on financial terms and finally place a new airliner order.
d) By excluding aircraft we get a clearer picture of the "core" durable orders, i.e. the goods that are more commonly used in the economy day to day and have a shorter depreciation life.

Certainly, we should not underestimate the importance of aircraft manufacturing for the economy. It is one of few high value-added industrial sectors, where the US still commands a leading position, particularly when military aircraft are included. But what about the rest?

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