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Wednesday, October 28, 2009

Durable Goods headline number masks weakness in Tech

The advanced report for Durable Goods for September came out Wednesday. The headline number for new orders showed a 1% month-over-month improvement after a surprisingly poor showing in August. How did things go in the tech sector?

Shipments --

Typically, investors pay the most attention to shipments and new orders. Shipments had the worst outcome in September. This first chart shows the results for Computers and Electronics Products which is the summarized category encompassing most high tech hardware manufacturing including computers, peripherals, storage, semiconductors, communication and networking equipment.

Yup, two down months in a row and we are now approaching the lows that were last seen in March and May.

This next chart shows shipments for the Computers and related products sub-category. Here we have a slight improvement though the previous month was revised downward a bit.


Next is the chart for Communications Equipment. The numbers include both defense and non-defense equipment. Here a nice spike in shipments is heading back toward the basement.


This next chart shows Semiconductor shipments. The declines here are small but there are still two in a row. It is encouraging that it still seems like the recent turnaround is holding on.



New Orders --

Now for the forward looking measure. This next chart shows New Orders for the tech sector as a whole. We have a slight droop in results here but it still looks like a working up-trend to me.


Our next chart shows new orders for the Computers and Related Products sub-category. Happily, we have a slight increase in new orders here. It looks like a bottom is in place but the level of new orders is still far below what was typical back in more normal times.


New orders for Communications Equipment are presented below. What looked like a nice developing up-trend just got slapped down.


Conclusion --

I've been positive on tech for months and tech stocks have certainly performed well -- until the last week or two, anyway. Seeing the results of this report, however, does give me pause. And the fact that I was just stopped out of my position in the ProShares Ultra Semiconductor ETF (USD) only seems to confirm the sense of doubt.

Many of the categories we examined above have now shown declines two months in a row. These declines are jeopardizing the upside reversals that seemed to be playing out just a few months ago.

The slight improvements in the Computer and related products category don't seem to measure up to some of the rosy guidance we have heard from companies such as Intel. Some bloggers have wondered whether enough consumers will show up to absorb all this inventory that is being manufactured. It's a good question but we'll have to wait a few months to find the answer.

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