Tuesday, January 29, 2008

Durable Goods Strength Suggests No Recession

From yesterday's WSJ article by Brian Wesbury:

A year ago, most economic data looked much worse than they do today. New orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006 (see graph above, red circle). Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

From today's Commerce Department report:

New orders for manufactured durable goods in December increased $11.2 billion or 5.2% to $226.6 billion (Note: Expected consensus was only a 1.6% gain). This was the second consecutive monthly increase and followed 0.5% November increase. Excluding transportation, new orders increased 2.6%. Excluding defense, new orders increased 2.9%. Transportation equipment, up three consecutive months, had the largest increase, $7.3 billion or 11.3% to $71.4 billion. This was due to defense aircraft and parts, which increased $3.5 billion.

Bottom Line: Durable goods orders signal a much stronger economy today than a year ago, as Brian Wesbury suggests. Further, the continued gains in durable goods orders indicate that the U.S. economy is nowhere near a recession, see the graph above (data available here) and notice the steep decline in durable goods orders before, during and after the last recession in 2001.


At 1/29/2008 1:34 PM, Anonymous Anonymous said...

It also sugest there is no reason for the FED to cut rates or an economic stimulus plan, can't have it both ways.

At 1/29/2008 2:04 PM, Anonymous Anonymous said...

The data suggest no reason.

The politics doesn't necessary follow the data. This is an election year. There's a chicken for almost every pot.

At 1/29/2008 2:15 PM, Blogger EVN said...

is this in real dollar terms??

At 1/29/2008 4:39 PM, Anonymous Anonymous said...

Per an article in the Pittsburgh business journal:

"The United States' economy is facing a 50-50 chance of falling into a recession, according to the chief economist at PNC Financial Services Group Inc.

Stuart Hoffman, speaking Tuesday at Pittsburgh's Omni William Penn Hotel, said that a recession would be a significant drain on the Pittsburgh region, where some economic indicators, including housing price appreciation, have bucked nationwide trends.

"The region is not immune," Hoffman said. "If the U.S. economy goes into a deep recession, these numbers are way too optimistic," Hoffman said.

While Pittsburgh's housing market has thus far largely avoided the pain felt in many parts of the country, other areas of the economy could be affected, Hoffman said.

The region's office vacancy, which has gradually fallen over the last several years, can expect to creep back up in 2008, according to Hoffman's predictions.

In the fourth quarter of last year, the total office vacancy rate for the region was 16.6 percent, according to a report from Downtown-based Grubb & Ellis Co., down from 18.1 percent in the third quarter.

Nationwide in the fourth quarter the office vacancy rate showed its first rise in four years, according to Reis Inc. (NASDAQ:REIS), a New York-based real estate services company.

A slew of problems, from high energy costs to difficulties in the U.S. auto industry, are an ongoing economic drain, Hoffman said.

But the largest threat to the economy at large is the continuing fallout from the subprime mortgage crisis and the end of years of rapidly appreciating home values in many markets, Hoffman said.

"Clearly (the economy's) greatest weakness is housing," Hoffman said. "Frankly, it's weaker that I thought it would be."

bsemmes@bizjournals.com | (412) 208-3829

At 1/29/2008 8:23 PM, Anonymous Anonymous said...

is this in real dollar terms??

No the data is not deflated. Why didn't Wesbury point out that half the increase was defence related? A one shot rush of adrenalin (80% increase), perhaps.

The Department of Defence confounded the prognosticators once again.

At 1/31/2008 12:39 AM, Anonymous Anonymous said...

The durable goods data are not as convincing as portrayed in the chart. The 2001 recession was unusually harsh to business capital spending, about as bad in that cycle as in 1990 or 1970 recessions. Also, this time round business capital goods orders are buoyed by aircraft orders, which are now primarily for export; that was not the case in past recessions.


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