U.S. Durable Goods Orders Rebound In October: 5 Top Picks

Orders to U.S. factories for long-lasting manufactured goods surged in October, reversing the sharp decline witnessed in the previous months. Moreover, core durable goods order –- a key metric to track business investment plan –- also soared. The turnaround happened despite contraction of investment in the manufacturing sector primarily owing to the lingering trade dispute with China and fears of a global economic slowdown.

The U.S. economy has been reeling under trade-related jitters, especially with its largest trading partner China, for nearly two years. The lingering tariff war has resulted in a slow pace of U.S. GDP growth. The manufacturing segment bore the brunt of the trade war owing to higher input costs and lower export demand.

Durable Goods Orders Rebound in October

On Nov 27, the Department of Commerce reported that new orders for manufactured durable goods increased $1.5 billion or 0.6% to $248.7 billion in October from September. In contrast, the consensus estimate was for a contraction of 0.8%. October’s turnaround is significant in view of a decline of 1.4% (revised estimate) in durable goods orders in September. Notably, a month-long disturbance in production in a major automobile company hindered the durable orders.

The significant increase in October’s orders is primarily due to an 18% jump in military aircraft orders. Moreover, orders rose almost 11% for commercial aircraft. In addition, new orders for fabricated metal products, heavy machinery and computers and related products grew 1.8%, 1.3% and 2.4%, respectively.

Core Durable Goods Orders Surge in October

More important information from the report is that the core durable goods order (which excludes defense aircraft) jumped 1.2% in October compared with a sharp decline of 1.4% in September.

The core durable goods data for October indicate that business spending is likely to continue although the pace may decline considerably. Therefore, stabilization of business investment in October will act as a relief to the manufacturing sector. Additionally, new orders for core capital goods is a leading metric to calculate equipment spending in the U.S. government’s GDP measurement.

Industry researchers are highly concerned about future capital spending by the U.S. manufacturing sector due to the prolonged tariff battle between the United States and China, and an impending global economic slowdown. Notably, the manufacturing sector constituted nearly 12% of U.S. GDP.

Our Top Picks

Against this backdrop, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the solid durable goods orders. We narrowed down our search to five such stocks. Each of these stocks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see Zacks Investment Research

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Written By: Zacks Investment Research