Highlighted by a substantial 1.4 percent rebound in core capital goods, durable orders jumped 1.1 percent in April to far exceed Econoday's consensus (minus 1.1 percent) and the top of Econoday's consensus range (plus 0.2 percent). Yet a 32.7 percent jump for defense aircraft fed a 3.7 percent surge in transportation equipment and skewed April's headline higher; excluding transportation, orders fell 0.2 percent which is just shy of Econoday's minus 0.1 percent consensus.

Defense aircraft are not part of core capital goods (nondefense ex-aircraft) and did not contribute to this reading's rebound. What did contribute were machinery which rose 1.0 pecent and computers which rose 1.8 percent. April's capital-goods rise, which more than offsets declines of 0.6 percent in March and 0.2 percent in February, is a plus for business investment and echoes surprisingly solid readings in the 12-month outlooks of many manufacturing surveys. Shipments of core capital goods rose 0.5 percent in April which gets business investment off to a good start for second-quarter GDP.

Commercial aircraft, where orders typically swing wildly month-to-month, is a negative for April's report, falling 8.3 percent but against a 96.0 percent surge in March. Motor vehicle orders are also a negative, though only a marginal one at minus 0.1 percent which, however, follows March's 0.1 percent decline and February's no change; these results will not lift expectations for the auto sector.

Other details in today's report include a 0.7 percent decline for total shipments, which reverses a 0.7 percent rise in March, and a 1.0 percent rise for total inventories, which reverses March's 1.0 percent decline. A big plus in the report is a large 0.8 percent rise in unfilled orders which adds to a 0.4 percent rise in March. Building backlogs are behind much of the optimism in the manufacturing sector and will be lifting forecasts for factory payrolls in the monthly employment reports.

Though many details in April are mixed the strong silver lining is the rise in core capital goods. Econoday's Consensus Divergence Index stands at 16 to indicate that US economic data, on net, are just surpassing economists' forecasts.

Forecasters see durable goods orders falling 1.1 percent in April following March's 3.2 percent rise. Ex-transportation orders are seen down 0.1 percent.

Durable goods orders are new orders placed with domestic manufacturers for factory hard goods. The report also contains information on shipments, unfilled orders and inventories. The advance release provides early estimates and is revised about a week later by the factory orders report.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Rising equity prices thrive on growing corporate profits - which in turn stem from healthy economic growth. Healthy economic growth is not necessarily a negative for the bond market, but bond investors are highly sensitive to inflationary pressures. When the economy is growing too quickly and cannot meet demand, it can pave the road for inflation. By tracking economic data such durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.

Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduce the prospects for inflation.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments.

Importance
Durable goods orders are a leading indicator of industrial production and capital spending.

Interpretation
The bond market will rally (fall) when durable goods orders are weak (strong). A moderately healthy report for new orders bodes well for corporate profits and the stock market, however. Durable goods orders are one of the most volatile economic indicators reported in the month and this series can be revised by significant amounts from one month to the next. More than any other indicator, it is imperative to follow either three-month moving averages of the monthly levels or year-over-year percent changes. These adjustments smooth out the monthly variability and provide a clearer picture of the trend in the manufacturing sector.

Whenever economic indicators are particularly volatile, it becomes customary to exclude the more variable components from the total. For instance, market players exclude defense orders and transportation orders from durable goods because these fluctuate more than the overall total. Incidentally, aircraft orders are the guilty culprit, which are included in both of these categories. Airplanes are ordered in quantity, not one at a time. Analysts exclude the categories containing aircraft orders because they obscure the underlying trend, not because the aircraft industry is unimportant.

Economists closely watch nondefense capital goods orders as a leading indicator of capital spending. Typically, traders follow the special series for nondefense capital goods excluding aircraft because it shows the underlying trend for equipment investment after discounting sharp swings from aircraft orders.

Durable goods orders are measured in nominal dollars. Economic performance depends on real, rather than nominal growth rates. One can compare the trend growth rate in durable goods orders with that of the PPI for finished goods to assess the growth rate in real orders.