May 24, 2012
April Was Another Weak Month For Durable Goods Orders
New orders for durable goods suffered another sluggish month in April, the Census Bureau reports. Although orders overall edged up last month by a slim 1.5%, the April report follows a sharp 3.7% fall in March. Nonetheless, last month’s slight gain was enough to boost the annual pace of new orders a bit vs. the previous annual reading. That’s hardly a game changer, but the gain at least leaves room for another month of debate about whether durable goods orders--a key leading indicator--are giving way to the dark side of the business cycle.
Looking at the numbers on a monthly basis clearly shows that recent history has roughed up the trend. Is this a smoking gun for the future weakness in the broader economy? Maybe, although some analysts aren’t yet ready to declare that the game is over.
"It looks more and more like businesses are hesitating to invest in the face of worsening uncertainties in the U.S. and global economy," opines Pierre Ellis, a senior economist at Decision Economics.
There's a fine line between hesitating and running up the white flag and so only the next round of data can bring decisive clarity. One small bit of good news today is the substantial rise in the annual rate of change in new orders in April vs. the previous month: 6.7% vs. 1.8%. But the improvement was tarnished somewhat by the continued slump in the year-over-year pace of business investment (new orders ex-aircraft and capital goods). Economists consider this subset of durable goods orders as a benchmark for business investment plans, and so by that standard it seems that corporate sentiment has turned cautious recently.
“These numbers are consistent with a lack of momentum heading into the second quarter,” says Sean Incremona, a senior economist at 4Cast Inc. “The recovery appears resilient but not necessarily strengthening.”
It's easy to be cautious… again. The renewed flare-up of worries about Europe and fears that Greece may leave the euro isn't helping boost confidence. The uncertainty about "Taxmageddon" in the U.S. is another potential negative. On a positive note, energy prices have been trending lower recently, and some analysts predict that even lower prices in the coming months are likely.
Nonetheless, the current climate isn't promoting confidence about the economy. It's premature to cherry pick a few data points and argue that the broad economy's growth in April has suddenly evaporated. The real test will be May's macro reports for deciding if some of the indicators are merely wobbly vs. deteriorating as a reflection of a deeper problem. Tune in a month from now for the answer. In the meantime, there's enough ambiguity to promote or deny your forecast of choice.
Posted by jp at May 24, 2012 10:37 AM