July Durable Goods Report
Computers & Related Products (CRP) Show Improvement
♦ Computers & Related Products (CRP) improved sequentially. The U.S.
Census Bureau released its July durable goods numbers this morning – we
track the CRP category, which is comprised of Electronic Computer
Manufacturing, Computer Storage Device Manufacturing and Other
Computer Peripheral Equipment Manufacturing. During July, new CRP
orders were up 13.9% M/M and shipments rose 13.5% M/M.
♦ July marked a sequential reversal and improvement in Y/Y declines.
The sequential increase in July marked a sharp reversal from the prior
month, which had shipments and new orders down 4.9% and 9.8% M/M,
respectively. On a Y/Y basis, new orders were down 3%, while shipments
declined only 1.4%. This was the best Y/Y performance since Mar-01 for
orders and since Dec-00 for shipments.
♦ Inventory declined to ten-year lows. With shipments slightly outpacing
orders in July, total inventory (in absolute $) decreased slightly, resuming a
downward direction after stabilizing in recent months. The ratio of inventory-to-
shipments also declined, to 0.98x, down from 1.13x in June, marking the
first month this ratio was below 1.0x since Oct-00.
♦ Orders and shipments remain at 1995 levels. Despite July’s sequential
improvement, both orders and shipments remain severely depressed (in
absolute $) relative to the prior six years. We believe this is an important
point that often gets lost when focusing on near-term growth trends.
♦ June numbers were revised downward. The June data were slightly
weaker than previously reported, with orders going to $6.0 bil from $6.2 bil,
representing a 9.8% M/M decline from 7.1% prior. Shipments for June were
revised down to $6.3 bil from $6.4 bil, a 4.9% decline from 3.2% prior.
♦ One month does not make a trend. We caution investors from becoming
too optimistic based on these data. These statistics can be very volatile,
and, as seen in the June revision, can be revised with the next release.
Clearly, though, sequential improvement is better than deterioration.
♦ We remain cautious on the group. Despite the positive “second
derivative” of Y/Y growth, we remain wary of industry fundamentals in light
of continued consolidation, pricing pressure and weak end demand.
Joel Wagonfeld
Joel Rubenstein
Daniel J. Block, CFA
The report contains charts and is worth downloading bofasecurities.com
Thanks to Les Horowitz.
G. |
