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Durable Goods Big on Defense Spending

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Tuesday, January 28, 2020

December Durable Goods Orders numbers were released an hour ahead of Tuesday’s opening bell this morning, and depending on how one views the prism is either a good number or a bad one. The headline figure was way better than expected: +2.4% versus expectations of around -0.3%. November’s revision, however, has been sent downward — from -2.1% originally reported to -3.1% this morning.

Digging inside the numbers tells a pretty clear story: strip out Defense costs from the December headline and we get a near-mirror image, from +2.4% to -2.5%. accounting for this was a huge U.S. government investment in defense aircraft and parts, up well over 100%. Ex-Transportation in general, we see a -0.1% print. What the Fed tracks as a proxy for monthly business investment is Non-Defense, ex-Aircraft Durable Goods Orders, and this figure came in at -0.9% — notably light of expectations.

So while the initial headline number appears robust, we expect these to be a one-off. After all, 100%+ gains in defense buys do not happen every month (during peacetime). That said, in December we still were void of the elusive “phase one” trade deal with China, which came about earlier this month. So some of the weakness we see in December business investment may bounce back when the January numbers report.

The Case-Shiller Home Price Index report for November (a lagging, but reliably accurate, indicator) came in a bit stronger: +3.5% from the slightly downwardly revised +3.2% from October. The 10-City composite gained 2.0% overall, up 0.3% month over month. The 20-City performed even better: +2.6% from October’s +2.2%. Familiar locales Phoenix, Charlotte and Tampa led the way for the month of Thanksgiving.

Speaking, as we just were, about defense companies, Dow component United Technologies outperformed expectations ahead of today’s opening bell, putting up $1.94 per share which beat the Zacks consensus by a dime. Revenues of $19.55 billion were up 0.66% from expectations, and from $18.04 billion in the year-ago quarter. Shares are selling off in a strongly positive pre-market overall. For more on UTX’s earnings, click here.

Zacks Rank #3 (Hold)-rated Lockheed Martin (LMT - Free Report) also topped estimates on both earnings and sales: $5.29 per share beat the $4.99 expected and $4.39 in the year-ago quarter, whiles revenues of $15.88 billion amounted to a 3.94% positive surprise, as well as the $14.41 billion posted a year ago. Shares are up more than 1% in early trading. For more on LMT’s earnings, click here.

PulteGroup (PHM - Free Report) keeps the homebuilder rally alight with a 6-cent beat to $1.14 per share, on $3.02 billion which outpaced expectations by 1.54%. Shares are up 2.4% in pre-market activity, adding to the stocks 14.2% gains year to date thus far. For more on PHM’s earnings, click here.

Mark Vickery
Senior Editor

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