In search of economic signs confirming or denying the gathering weakness, this morning’s durable goods report for August extends fresh support for the fear that the forces of darkness are indeed approaching. As our chart below shows, August witnessed the biggest monthly drop in percentage terms since January. It’s also the first decline since May. If you ignore defense orders, new orders dropped by an even steeper 5.9% last month.
It’s hard to put a positive spin on the latest durable goods report. The aura is that much gloomier when you couple today’s news with yesterday’s update on existing home sales, which tumbled more than 4% last month to the slowest annualized rate in five years.
It would be folly to dismiss the signs that the economy’s weakening. On the other hand, all’s not lost, at least not yet. Consider our second chart below, which puts today’s weak durable goods report into broader historical context. As you can see, the latest dip, while troubling, is hardly definitive proof that recession is imminent. We’re still within the range of volatility that’s prevailed in recent years.
But let’s be clear: the pressures are building and from the evidence in recent weeks it’s only prudent to expect that the news will get worse before it gets better. That, at least, is our guess. But the economy is still standing and, despite all the hits continues to hold up, as far as we can tell at this point. If there’s a deciding factor that will tip the balance one way or the other, that will probably be consumer spending, which accounts for more than 70% of GDP.