I have to admit, I was briefly taken aback when I first read the headline at CBS News about the durable-goods report released this morning.  “Orders jump for most long-lasting factory goods,”it read, and CNBC’s sounded similarly cheery — “Factory Orders Fly Even As Defense in the Dumps.”  Why not just report the topline results, I wondered?

This is why:

New orders for manufactured durable goods in January decreased $11.8 billion or 5.2 percent to $217.0
billion, the U.S. Census Bureau announced today. This decrease, down following four consecutive monthly increases, followed a 3.7 percent December increase. Excluding transportation, new orders increased 1.9 percent. Excluding defense, new orders decreased 0.4 percent. Transportation equipment, down three of the last four months, drove the decrease, $14.7 billion or 19.8 percent to $59.7 billion. This was led by defense aircraft and parts, which decreased $5.1 billion.

Transportation is a rather volatile industry, and defense spending has been cut even before the sequester hits.  Neither of these are a big surprise in turning negative.  However, the report isn’t all that cheery even when looking at the results without each.  A rise of 1.9% excluding transportation is positive, but “jump” seems a bit much.  Excluding defense and including transportation, orders went down 0.4%, and that’s not impressive at all.

The AP, whose report CBS published, focuses on core capital goods for its sunny disposition:

The Commerce Department says orders for so-called core capital goods, which include machinery, equipment and software, rose 6.3 percent in January from December. A sharp drop in demand for commercial aircraft caused overall durable goods orders to drop 5.2 percent, the steepest since August. …

The increase in core capital goods suggests companies are willing to expand their production capacities despite worries that automatic government spending cuts that kick in Friday will slow the economy in the coming months.

So did CNBC:

A gauge of planned U.S. business spending increased by the most in just over a year in January and new orders for long-lasting manufactured goods excluding transportation rose solidly, pointing to underlying strength in factory activity.

True, but the backlog is also disappearing, while inventories are rising again:

Unfilled Orders. Unfilled orders for manufactured durable goods in January, down following four consecutive monthly increases, decreased $2.1 billion or 0.2 percent to $989.2 billion. This decrease followed a 0.8 percent December increase. Transportation equipment, also down following four consecutive monthly increases, drove the decrease, $5.0 billion or 0.9 percent to $582.8 billion.

Inventories. Inventories of manufactured durable goods in January, up fifteen of the last sixteen months, increased $0.7 billion or 0.2 percent to $374.8 billion. This increase followed a 0.1 percent December decrease. Transportation equipment, up thirty consecutive months, drove the increase, $1.1 billion or 0.9 percent to $115.8 billion.

The market reaction seems to indicate that investors see this report more positively, although CNBC doesn’t seem to be able to distinguish as to whether that’s because of the rise in core capital investment or the Fed’s decision to keep monetary policy loose:

U.S. stock index futures were higher Wednesday following the durable goods orders report and ahead of Fed Chairman Ben Bernanke’s second round of testimony, but ongoing worries over political deadlock in Italy kept a lid on gains. …

Tobias Blattner, a euro zone economist at Daiwa Capital Markets, saw little grounds for optimism regarding Italy.

“Even if a Bersani minority-led government or a grand coalition between Berlusconi and Bersani ultimately emerges from the elections, it will be a weak government that is unlikely to survive for long as the experience of the past year (decades) or so suggests. So, what seemed to have emerged as the smallest common denominator – to avoid new elections – looks ultimately inevitable to us,” Blattner wrote in a note.

However, global market sentiment was boosted by Federal Reserve Chairman Ben Bernanke’s speech on Tuesday, which helped soothe fears the Fed might end its asset purchases earlier than forecast.

The core business investment increase is good news, but the cheeriness reminds me of the rush in the media to explain away the -0.1% Q4 GDP contraction in the initial estimate from Commerce as somehow good news, too, and for the same reason (increased business investment).  The slack demand still should be a concern, especially with Europe teetering again.  The momentum behind business investment won’t last if demand doesn’t follow, and so far we’re not seeing that happen.