Durable Goods Orders completes the pre-holiday cornucopia of domestic macro data and accelerating growth continues to swell ever more bountiful …..
The headline sequentials on this morning’s Durable Goods data for October were decidedly underwhelming but were belied by a decidedly different rate-of-change reality across the internals.
- Headline: Total Durable Goods Orders fell -1.2% M/M and decelerate to +1% Y/Y. The reversal in (the perma-volatile) Private Aircraft Orders – which drove much of the headline juicing last month – provided the drag to October (recall, Private Aircraft Orders were +162% M/M & +50% Y/Y last October). Meanwhile, …
- Durable Goods Ex-Defense & Aircraft = +0.3% M/M and accelerates to +6.5% Y/Y = 38-month highs. Inventory-to-sales ratios are down and the closest proxy for the stuff actual households purchase remains strong.
- Capital Goods: Core Capital Goods orders = -0.5% M/M as we get a normalization in some of the post-hurricane activity but that still = +8.1% Y/Y = just off of 65-month highs. Accelerating? No. Bearish? Also No.
If you’re keeping score, here’s how the horn of plenty is filling in 4Q …..
- Housing Starts = +13% M/M to start 4Q and tracking +11% QoQ = resi investment should reverse to a solid positive contribution to growth in 4Q
- New Orders (Fed Regional Surveys) = back to peak for October and holding or building on those gains in November. ISM New Orders (Oct) at 63.4 agrees.
- Capex Plans (Fed Regional Surveys) = back to peak for October and holding or building on those gains in November
- Industrial Production = 2.9% Y/Y in October = 3Y High --> Yes, the normalization in industrial activity post-hurricane helped the number but it would have accelerated absent the distortion.
- Retail Sales were +4.6% Y/Y in Oct and Control Group Sales were +3.4% Y/Y with the 2Y ave hitting an 18-month high. Aggregate Income growth collapsed in 4Q16 and while any underlying deceleration was likely less than the reported estimates that rollover is now the comp and should help support reported consumption growth in 4Q.
To keep it simple ahead of the holiday… you see that green line down there in the 1st chart? … it’s probably going to get longer.
We’re currently tracking for a 6th consecutive quarter of accelerating growth and the macro-simplistic reality is that #GrowthAccelerating Quad 1&2 exposures have outperformed significantly over that period and that's unlikely to change.
And if we happen to get corporate friendly tax reform and modest-to-moderate repatriation flows, the E in P/E can get another juicing just in time for trough 2009 earnings to roll out of the CAPE Ratio calculation and everyone's favorite valuation angst multiple will get a step function decrement.
Tops are processes, the peak in the current earnings cycle is probably rearview and today isn’t the day to realize growth and profits accelerated, but our larger growth outlook remains unchanged, for now. We will traverse the other side of the growth curve but that is not the current actuality.
To growth,
