US DATA PREVIEW: ELECTRONICS REBOUND BOOSTS NOVEMBER DURABLES
By Kevin Kastner
WASHINGTON (MktNews) - A boost in electronics orders in November was responsible for pulling U.S. durable goods orders out of their downtrend, according to analysts surveyed by Market News International.
Durable goods orders for electronic equipment fell 10.4% in October on a drop in semiconductors. An earthquake in Taiwan was likely the key factor, analysts said, and a strong rebound is expected in the November durable goods data.
Even excluding the electronics component, orders are still expected to be strong, as motor vehicles orders were boosted by sales. Defense orders, however, are expected to post a significant decrease after jumping 41.0% in October. Overall, analysts expect a strong report, as a rise in the National Association of Purchasing Managers new orders component suggests orders were rising ahead of fears of a Y2K inventory squeeze.
The Commerce Department is scheduled to release November durable goods report at 8:30 a.m. EST Thursday.
In a survey of 21 economists by Market News International, the median forecast was for durables to rise 1.1% in November, following a 1.2% decline in October, and a 1.5% drop in September. Forecasts for November ranged from down 0.5% to up 2.1%.
"The choppy durable goods data likes to surprise, but signs generally point to a strong rebound in November," said Avery Shenfeld, economist at CIBC Oppenheimer, who forecasts a 1.8% rise in durable goods.
The main component of the recovery, electronic equipment, is expected to not only retrace all of October's decline, but also advance further.
"The anticipated 12.0% surge this month reflects the shifting of some of October's orders of computer parts and chips that had been delayed a few weeks because of the earthquake in Taiwan," said Joseph Abate, economist at Lehman Brothers.
The electronics components category of electrical equipment, which includes these computer parts, fell 28.4% in October. Excluding this drop, durable goods would have posted a rise in October.
"We look for the plunge in the electronics sector to be reversed. If it is not, or if there is not other weakness, we could be seeing some Y2K-related slowdown as companies complete their equipment upgrades and wait to see how their installations actually perform in the new year before adding more," said Carol Stone, economist at Nomura Securities International.
Aircraft orders are expected to show a gain that reflects the pickup in Boeing orders in the month. The number of orders with Boeing rose to 9 in November from 3 in October. Aircraft orders will be boosted even further in the December durables data by a huge influx of Boeing orders for this month.
Defense orders, on the other hand, are expected to drop off sharply in November after skyrocketing 41.4% in October.
Jim Glassman and Bill Sharp, economists at Chase Securities, said that the expected decline in defense orders "would be consistent with the tendencies for defense orders to 1) decrease in the second month of a quarter and 2) to drop in the subsequent month of a 40+% advance." Glassman and Sharp expect a 20.0% drop in November defense orders.
"Excluding aircraft and defense, orders are expected to jump 2.5%, following a large 2.7% decline in October and a 1.0% decrease in September," Glassman and Sharp said.
In addition to electrical equipment, motor vehicles orders are also expected to be a positive influence on the headline number for November.
"Robust vehicle sales likely drained dealer lots, and November should see a strong orders gain for auto assemblers," Shenfeld said. The Federal Reserve reported that motor vehicle assemblies rose to a 13.4 million unit annual rate in November from 13.2 million in October. The increase was entirely due to autos, which accelerated to a 5.9 million annual rate from 5.7 million in October.
"A solid rebound in durable goods orders will underscore our view that the factory sector remains in good shape in the final quarter of the year, with low inventories positioning the sector for further growth in early 2000," Shenfeld concluded. |
