Following two consecutive monthly increases, a $8.6 billion (-10.0%) drop in orders for transportation equipment was a major component in January’s $9.2 billion (-3.7%) overall drop in new durable goods orders, for the largest decline in orders since a -6.8% drop in July 2017. Increases in orders for computers (+6.4%), communications equipment (+6.6%), fabricated metal products (+0.5%), and motor vehicles (+0.1%) were offset by declines for defense aircraft (-45.6%), civilian aircraft (-28.4%), capital goods (-5.1%), electrical equipment/appliances (-0.8%), and machinery (-0.4%). Excluding defense, orders were down -2.7%, and excluding transportation orders were down -0.3%. On a yearly basis, orders were up 8.9%, with gains in all areas other than computers (-2.9%), defense aircraft (-35.0%), and defense capital goods (-7.2%)

Strong consumer spending caused more of an increase in imports and draw down in inventory builds than originally estimated, resulting in a -0.1% downward revision in the second estimate of 2017 Q4 GDP to 2.5% and widening the drop from the previous quarter’s 3.2% rate. The import and inventory updates were offset by residential fixed investments (+13.0%), consumer spending (+3.8%), exports (+7.1%), nonresidential fixed investments (+6.6%), and government spending (+2.9%). On a yearly basis, GDP increased 2.3% in 2017 compared to 1.5% in 2016.

Personal income increased +0.4% in January, with after tax disposable personal income (DPI) up +0.9%, and inflation adjusted real DPI up +0.6%. Personal consumption expenditure (PCE) growth slowed to +0.2%, down from the +0.4% and +0.7% increases in the preceding two months, as some of the income growth helped fuel a +0.7% bump in the savings rate to +3.2%, its highest rate since +3.5% in August. A drop in new car sales played a major factor in a -$24.6 billion drop in real PCE spending for durable goods, with an offset from a +$4.8 billion increase in service spending bringing real PCE spending down -0.1%. PCE inflation was up +0.4% (+1.7% Y/Y), with core PCE, which strips out energy and food and is the Federal Reserve’s preferred inflation measure, up +0.3%, to an unchanged annual rate of +1.5%.