March 28, 2012
Durable Goods Orders Rebound After January's Slump
New orders for durable goods rose 2.2% last month, taking some of the sting out of January’s sharp 3.6% tumble. February’s rebound isn’t particularly impressive next to last November’s 4.2% surge, or even December’s 3.3% increase. But the latest pop was enough to support the year-over-year pace and keep it firmly in 10%-plus territory. In short, this crucial series—economist Bernard Baumohl calls durable goods orders "an excellent leading indicator of economic activity"—remains decisively in the growth camp. Whether that's enough to offset trouble brewing elsewhere—decelerating income growth, for instance—remains to be seen. But for now, the macro news du jour looks a touch brighter.
"Business spending will remain a key driver of the U.S. economy, not to the same extent as last year, but still a positive force," says Sal Guatieri, a senior economist at BMO Capital Markets.
"The economy is slowly improving, but it is definitely a halting recovery where we're not accelerating to any great degree," notes Liam Dalton, president of Axiom Capital Management.
On the topic of looking ahead, new orders for capital goods— non-defense capital goods ex-aircraft orders—rebounded last month as well. Even better, the year-over-year change in capital goods orders continues to turn higher, rising 8.4% in the 12 months through February—the fastest pace since last October. Economists see this subset of durable goods orders as a benchmark for business investment plans.
"The three-month-on-three-month annualized growth rate of core capital goods shipments was only 1.1 per cent in February," Paul Ashworth, chief US economist at Capital Economics, tells the Financial Times. "That strongly suggests the first-quarter growth rate of business investment in equipment and software will be similarly lacklustre, helping to explain why most economists still expect overall first-quarter GDP growth to come in at or just below 2.0 per cent." But there may be silver lining struggling to get out, he added. "Thankfully, the survey evidence points to a pick-up in business investment growth in the second quarter, suggesting that the first quarter lull may reflect the impact of the expiry of the accelerated depreciation tax allowances at the end of last year."
Nonetheless, there's still plenty of skepticism about how the broader macro trend will unfold in the months ahead. “While there is a lot of optimism about the U.S. economy, GDP growth is still only going to be around 2%” opines Peter Boockvar, equity strategist at Miller Tabak.
Speaking of GDP, tomorrow's update for the third and final number on last year's fourth quarter is expected to remain at 3.0%, according to the consensus forecast via Briefing.com. But tomorrow's other scheduled economic report will likely have much more traction on framing the macro outlook: initial jobless claims. Last week's number put new claims at a four-year low. For what it's worth, economists don't seem to think that we'll make much progress with tomorrow's update. The consensus prediction anticipates virtually no change for the next round of claims data.
Posted by jp at March 28, 2012 9:55 AM