Durable Goods Weaker But Could Be Worse

April's durable goods orders were much weaker than expected, but the markets are finding a silver lining in positive revisions to March numbers.

Durable goods orders fell by 3.6 percent, compared to the 2.2 percent decline expected. But March was revised higher to 4.4 percent, from an original increase of 4.1 percent.

The report is the latest in a string of weaker-than-expected data.

"There's no sense this is a report that tells you we're heading for a big downturn in manufacturing, in the industrial complex, in the business investment picture," said CSFB economist Jonathan Basile.

"It seems that every first month of the quarter we get a bad print, and then the back end of the quarter tends to do better," he said.

Excluding transportation, April durable goods orders unexpectedly fell by 1.5 percent, compared to the 0.5 percent expected gain. The same number in March was revised to a gain of 2.5 percent, from a previously reported 2.3 percent.

Nondefense capital goods excluding aircraft fell by 2.6 percent in April, but March was revised to a much higher 5.7 percent gain, from the original 3.7 percent.

Miller Tabak's Dan Greenhaus points that the durables were expected to be weak in April, with Boeing receiving only two orders for new aircraft and auto production weak due to the Japanese earth quake and related disruptions.

"So there is no confusion, this is a poor way to start the second quarter," he wrote. "However it is offset by the reality that the first quarter ended on a much stronger note than we originally anticipated."

Durable goods are notably volatile but they are looked at as a leading indicator of manufacturing. The weakness is consistent with other manufacturing indicators which have been showing softness.

Basile said it was the durables report from last July that spooked markets last August. "The decline of eight percent for July core cap ex orders.. .that just scared the pants off of everyone...it was 'oh my God! double dip!," Basile said.

But he said the expectation was that this report would be weak. "Until there are signs of unwanted inventory build, there's no call for recession here, there's no call for double dip. It's the ebb and flow of slowdown scares. That's how we're viewing it," Basile said.

Now the focus will be on the second look at first quarter GDP, released at 8:30 a.m. Thursday. First quarter GDP was reported at a weak 1.8 percent. Basile expects to see first quarter GDP revised to 2.2 percent, but he said the March durables revision could make the number even higher.

Economists have been paring back second quarter GDP forecasts, due in part to the impact of the Japanese earth quake and tsunami. Macroeconomic Advisers Tuesday trimmed second quarter GDP to 2.8 percent from 3.2 percent Wednesday.

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