INDICATOR:  February Durable Goods Orders

KEY DATA:  Orders: -1.4%; Excluding Aircraft: -0.4%; Capital Goods: -1.4%; Backlogs: -0.5%

IN A NUTSHELL:  "Businesses are showing distinct signs of cautiousness when it comes to buying big-ticket items."

WHAT IT MEANS:  Business investment has been a solid component of growth but that is not shaping up to be the case in the early part of this year.  Capital spending is moderating and it isn't just because of aircraft orders.  They are bouncing around, as usual, and whether they go up or down does little to production levels.  The backlogs for aircraft are measured in years.  But in other portions of the economy, the ebbs and flows do matter and there is not a huge amount of demand coming from businesses.  Non-aircraft durable goods orders fell in February and I am not sure you can really blame it on the winter (or the Bossa Nova).  Demand was off for fabricated metals, machinery and computers.  Clearly, the low price of oil is causing energy firms to cut back on their activity.  Why vehicle orders fell for the second consecutive month is anybody's guess, unless there is a winter effect here.   There were some positives in the report.  Orders for communications equipment, primary metals, electrical equipment and appliances rose solidly.  So all is hardly lost.

MARKETS AND FED POLICY IMPLICATIONS: The first quarter is looking somewhat weak as the winter and declining oil prices are taking demand out of the system while consumers are only slowly spending the extra money they have from not pumping it into their gas tanks.  There is a mismatch between those elements of the economy that can and do react quickly to change and those that take their time.  But that doesn't mean there is any fundamental weakness.  As we continue in this low energy cost environment, the savings will accumulate and demand will rise.  While first quarter growth could be weak, the second quarter could more than make up for that softness.  The Fed understands this but I am not sure investors know what to make of good or bad numbers.  Will it put off a rate hike or not matter?  That is never clear.  And there are other concerns, such as the strong dollar and its impact on earnings, at least for companies that earn their money outside the U.S.   So how the markets react to this number is uncertain, even if most Fed members don't react a whole lot.

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