News of the economy’s slowdown continues to roll in, with this morning’s report on durable goods orders delivering the latest excuse to embrace gloom.
New orders for manufactured durable goods fell 2.4 percent last month, the U.S. Census Bureau announced. Coming along with yesterday’s report that existing home sales continued to slide, it’s getting easier to assume that something more than a pause that refreshes has arrived.
Durable goods are a volatile series, of course, and its relevance is one that’s limited to long-term trends. On that note, it’s worth noting that durable goods orders were still higher last month compared with 12 months previous. Nonetheless, Wall Street now seems inclined to see the glass half empty, and any explanation to the contrary is apt to be dismissed.
The aura that trouble lies ahead for the economy is starting to take root in the stock market. The S&P 500 shed nearly a half-percent yesterday, and it’s likely that yesterday’s news of falling home sales in July had more than a little influence. Equity investors previously had been inclined to buy in the wake of the Fed’s hold-’em-steady decision on interest rates on August 8. But the market is coming to realize that if the Fed’s not hiking the price of money, that implies that economic growth may be waning.
Waning, perhaps, but earnings growth remains intact…so far. According to Zacks, S&P 500 median earnings per share growth for the second quarter is a strong 13.2%, based on reporting by nearly 94% of companies in the index, noted Dirk Van Dijk on Monday. What’s more, the positive surprises on earnings far outweighed the negative ones.
Ah-ha, you say, the second quarter is gone; on to the third. Indeed, although for the moment the consensus outlook on earnings calls for a slowdown of only marginal proportions amounting to a 9.4% rise, Van Dijk reported. That’s slower than the third quarter’s pace, but not exactly the end of the world. In fact, 9.4% looks pretty good by historical standards, assuming it proves accurate. And while we’re indulging in prophesy, the median analyst prediction calls for an 11.5% rise in earnings for all of 2006.