US durable goods orders fell 1.4%, or $4.4 billion, to $315.5 billion in February, according to the US Census Bureau. This followed a 0.5% fall in January and was weaker than the expected 0.5% drop.
Excluding transportation, new orders rose 0.8%. Excluding defence, new orders fell 1.2%.
Transportation Sector Drives February Decline
Transportation equipment fell by $6.1 billion, or 5.4%, to $106.1 billion, and has declined in four of the last five months. This drove the overall fall in durable goods orders.
After the release, the US Dollar showed little change. The USD Index was slightly lower at 99.92 at the time of reporting.
We remember seeing similar data back in early 2025, when a 1.4% drop in durable goods orders signaled a manufacturing slowdown. We are now seeing an echo of that, with the most recent March 2026 report showing a 1.2% decline, which disappointed analysts who had forecasted a small increase. This pattern confirms a cooling trend that has been building over the last few months.
This weakness is particularly concerning because it comes as the latest Consumer Price Index (CPI) report shows inflation remaining persistent at 3.1%. This presents a dilemma for the Federal Reserve ahead of its next meeting, making the path for interest rates much less clear than it was at the start of the year. This uncertainty is what we believe will drive the market for the next several weeks.
Volatility Rising As Markets Reprice Risk
As a result, implied volatility is on the rise, with the VIX index moving from the low 14s to around 18 in just the last ten trading days. This signals that the market is actively pricing in the potential for larger price swings in the near future. For those holding large equity positions, this is a clear signal to consider adding downside protection.
Looking back at the 2025 report, the transportation sector was a major source of weakness, a trend that is re-emerging in current industrial activity. We are therefore considering purchasing put options on industrial sector ETFs to hedge against further softness in this area. This allows for protection while limiting the capital at risk.
The key takeaway is that economic data has become less reliable, creating a choppier environment than we saw throughout last year. This market favors strategies that can profit from increased volatility, such as straddles on major indices, rather than simple directional bets. We will be watching the upcoming jobless claims and consumer sentiment data very closely for the next signal.
