April 25, 2007
KEEPING HOPE ALIVE
This morning's update on durable goods orders is just what the optimists need. As a leading indicator of future economic activity, a positive reading in this space provides one more reason to think that a recession is that much further off.
Or so one could reason after digesting the numbers. New orders for manufactured durable goods rose 3.4% last month, the U.S. Census Bureau announced. That's up from a 2.4% jump in February. In fact, advance durable goods orders rose in four of the past five months, as the chart below shows.
Encouraging as the recent record is, there's still reason to reserve judgment about what it all means for the economy down the road. Although durable goods orders have been pushing higher lately, the gains tend to pale compared to the losses, which have been less frequent but much bigger in relative terms.
The 8%-plus decline of last October and again in January have helped offset the relatively modest gains of late. As a result, the dollar value of the new durables goods orders fell 2.1% last month compared to a year earlier. In fact, as our second chart below reminds, looking at durable goods orders on an annual basis provides little, if any, comfort that a turnaround is underway. The durable goods ship, in sum, continues to take on water from a longer-term perspective.
Optimists aren't quite out of arguments yet, however. Turnarounds--if that's what we now have--emerge from an otherwise pessimistic context. Bear markets continue to be bear markets until they don't; sales fall until they don't.
Perhaps the recent, albeit modest strength in new durable goods orders will continue, and perhaps accelerate. Then again, perhaps not. We don't know, and neither does any one else. The future's uncertain as always.
That said, the forces of growth and contraction continue to battle, and for the moment there's no clear winner. If we had to give one side or the other an edge, we'd pick growth. But that could change quickly in the current climate. Indeed, the edge we perceive comes with precious little margin for error. The potential for downside drama in economics reports remains alive and well, as yesterday's sharp drop in existing home sales reminds.
Posted by jp at April 25, 2007 9:27 AM
Looks to me like the seasonality filter is taking care of the monthly but not the quarterly pattern.
They publish a non-seasonally adjusted series ... care to check and see if it looks the same?
Posted by: David Tufte at April 25, 2007 9:51 AM