Durables Not That Bad, Crude Inventories Surging

- Durable Goods Orders for March fell 2.8% versus estimates of a .3% increase and a downwardly revised .2% decline in February.
- Durables Ex Transports for March fell 1.0% versus estimates of a .5% increase and a .2% fall in February.
- Summary of Weekly Petroleum Data for the Week Ending April 22, 2005. Crude oil inventories rose 5.5M barrels versus estimates of a 650K rise, distillate fuel inventories fell 1.4M barrels versus estimates of a 100K rise and gasoline inventories fell 300K barrels versus estimates of a 1M barrel fall.

Bottom Line: Durable goods orders for March fell 2.8% vs. estimates of a .3% increase and a downwardly revised .2% decline in February. Durables excluding transports for March fell 1.0% vs. estimates of a .5% increase and a .2% fall in February. This "very bearish" number, as some pundits are calling it, doesn't appear to me to be that worrisome. Orders for transportation equipment fell 7.8%, mainly due to a 23% decline in the very volatile aircraft component. Boeing received orders for only 11 planes last month, compared with 34 in February. Moreover, the report was skewed by the loss of working days around Easter, which was in March rather than April. The only economist to correctly forecast March's decline was Ian Shepherdson of High Frequency Economics. He is saying "these data are unreliable" and that "he expects a hefty April rebound." I believe analyst estimates of 3.5% GDP growth are at risk for 1Q as a result of a weaker-than-expected March and a higher-than-expected deflator. However, I continue to believe that U.S. growth will temporarily slow to around 2% before rebounding in the second half. I do not think a recession is likely. I also continue to believe the "contango" in crude is resulting in a temporary artificial boost to current demand. As perceptions shift over the next couple of months, a demand vacuum will send crude prices lower than most currently expect.