November 27, 2012
The Trend For Durable Goods Orders Remains Weak
New orders for durable goods were flat last month, the Census Bureau reports. That follows a strong 9.2% gain in September. Stripping out the volatile transport sector, however, reveals that new orders jumped a respectable 1.5% in October. Meantime, business investment gained some ground last month, with new orders for non-defense capital goods ex-aircraft rising 1.7%--the best month since May. Corporate America's willingness to invest isn't dead yet. Even so, new orders for big-ticket items overall remains sluggish. Today's report suggests that the bottom isn't falling out on this leading indicator, at least not yet, but the numbers are still well short of offering robust confidence for arguing that demand is strong.
Still, today's modest bit of good news is a surprise for economists, who expected that the October report would post a sizable retreat. “Demand for durable goods has stabilized,” Ryan Wang, an economist with HSBC Securities, tells Bloomberg. “It’s a positive sign.”
Fair enough, but it's a positive sign that's also precarious in the current climate. Looking at the year-over-year trend in durable goods orders reminds that this indicator certainly isn't impressing the bulls. The headline number is generally treading water these days while business investment continues to fall relative to year-earlier levels. October's revival is welcome, but one month is weak tea against the recent trend.
The good news is that durable goods orders are still a weak player in a field of generally positive indicators, when measured on an annual basis. That's a sign that the business cycle isn't caving, as noted in last week's update of The Capital Spectator Economic Trend Index. It's clear that the monthly comparisons for October suffered setbacks, although it's debatable how much of this is due to weather-related distortions vs. deeper problems for the business cycle overall. A mix of the two explanations is probably a safe bet.
Nonetheless, today's durable goods report, encouraging as it is relative to the much darker expectations that preceded the release, is a reminder that the economy is vulnerable and growing at a slower rate these days. Is the recent slowdown enough to push us into recession? Not yet, or at least not yet based on a broad read of the numbers. But there's nothing in today's durable goods update to wipe this possibility from our minds and so it's on to the next batch of reports for additional perspective.
Next up is tomorrow's weekly update on jobless claims. The consensus forecast expects another modest decline that will chip away at the storm-related surge of two weeks ago. Another drop constitutes progress, although anything less than a big decline in tomorrow's claims data will keep debate open about where we go from here.
Posted by jp at November 27, 2012 11:02 AM