One freshly published number in the dismal science can mean a lot these days when it comes moving investor sentiment. The case du jour comes to us from The U.S. Census Bureau, which reported this morning that durable goods orders posted an unexpected March decline—and a sharp decline at that.
New orders for manufactured durable items, which are defined as pricey goods that are made to last several years or more, dropped 2.8% last month. That’s the steepest slump since September 2002. Transportation equipment was the big loser. In fact, transportation-related orders have been descended now for four months in a row.
Transportation equipment orders are an economically sensitive group, and volatile too, and so economists like to remove them from the mix to assess trend. Alas, even after this adjustment there was still a fair amount of red ink left on the table. In fact, durable goods-ex transport fell by 1.0% in March, the most since last October.
Does this mean the economy’s slowing? The bond market was only too quick to make that conclusion. The yield on the 10-year Treasury Note slipped today, falling to 4.23%.
But the stock market wasn’t quite so sure. The S&P 500 rose a bit today, effectively shrugging off the news in durable goods. Or was the modest equity rally more of a sigh of relief in seeing oil prices fall?
In any case, as troubling as today’s durable goods number appears to be, it’s actually worse if you consider that last week’s major piece of economic news came in the form of rising consumers prices. Indeed, the CPI index revealed itself to be increasing at an accelerating pace in March: up 0.6%, the fastest since October.
Assume for a minute that today’s durable goods order is the definitive sign that economy’s slowing. Next, take that assumption and mix it vigorously with last week’s inflationary CPI report. What do you get?
Stagflation. Paul Krugman made that argument last week in his New York Times column. And while more than a few pundits took issue with Krugman’s analysis, he’s found one more reason in today’s economic news to stand by his column.
Nonetheless, inflation is not yet of the “runaway” variety nor is the economy anywhere near failing on all cylinders. “To get into a stagflation regime you would have to have inflation expectations unhinged, and we definitely don’t have that,” Sheryl King, senior economist at Merrill Lynch, tells MSNBC.
But if it’s too early to say definitively if stagflation’s a legitimate threat, neither is it premature to draw up a list of trends that could provide aid and comfort to stagflation’s forces. That includes higher energy prices and rising import prices, courtesy of a falling dollar. For a nation with a growing appetite for things foreign, that’s not an encouraging sign. Indeed, import prices jumped by 7% for the year through March, or more than double the rate of increase in the government’s consumer price index.
Tomorrow’s first estimate on the first-quarter GDP from the Commerce Department will play into investors fears, or optimism, depending on what the numbers show. The consensus outlook is for an economy that advanced by 3.5% during January through March, according to TheStreet.com.
GDP reports, on the other hand, are hopelessly lagging indicators. For better or worse, the first-quarter GDP release will be the last major piece of statistical evidence published before the Federal Reserve convenes next Tuesday and debates whether to raise or not to raise the price of money.