Durable Goods data was just released, and it warn’t none too purty: +0.1%. That’s far below the expected 2% consensus.
The weaker than forecast report was restrained in large part by a 24% drop in military buys (mostly a drop in aircraft). But even looking at the data Ex-defense equipment, spending rose only 1.2%, still far below the 2.0% consensus expectations, and below ~2% level of core inflation. Ex-transports fell 0.7% vs the consensus of up + 0.5%.
Economists polled seemed to have a surprisingly upbeat assessment of consumer
and business spending — the consensus ranged from +1.0% to 4.8%.
Non-Defense
Capital Goods ex-Aircraft — the pure cap ex spending component — fell
0.4%. This comes on top of a 2.9% drop in October. Thus, it appears the tiring consumer is no longer alone: Businesses are also throttling back major
purchases of capital equipment.
"Demand for capital goods also softened, suggesting business investment will be a drag on economic growth. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 0.4 percent after a 2.9 percent decrease in October that was larger than previously estimated. Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after dropping a larger-than- previously-estimated 1.2 percent in October."
The 0.1 percent increase, the first gain in four months, followed a revised 0.4 percent drop in October that was larger than previously reported, the Commerce Department said today in Washington. Excluding transportation, demand fell 0.7 percent.
In other words, had October not been revised downwards, November data would also have been negative. Weaker CapEx spending is but the latest
sign of a slowing economy.
But wait — wasn’t Business Spending going to "take the baton" from consumer spending as we heard time and again? (I guess not).
Bloomberg explains the reasons why:
"Tougher lending standards, bloated inventories and slowing sales are
causing some companies to limit spending on equipment such as
communications gear and machinery. The report suggests the worsening
housing recession may be spreading to other parts of the economy.
Gee, who could have ever seen that one coming . . . ?
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Sources:
ADVANCE REPORT ON MANUFACTURERS’ SHIPMENTS, INVENTORIES, AND ORDERS (November 2007 )
8:30 A.M. EST December 27, 2007
http://www.census.gov/indicator/www/m3/ (PDF)
U.S. Durable Goods Orders Gain Less Than Forecast
Courtney Schlisserman
Bloomberg, Dec. 27 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=az4I__0qYePE&
Glad to see this on your blog and an update from a rational economic perspective. The spin on the other sites and news is getting a little old with ‘all is OK’ ignore the cost of energy, ignore real estate, ignore consumer spending, ignore the international risk aspects, ignore the election yet do not ignore our opinion based on spinning the data. Appreciate your voice and economic perspectives.
Many thanks for your information flows and your continuous efforts in order to introduce a balance assessment of data.
Wishing you and your readers a happy new year
Before the spelling vestal comes for duty
Please read “balanced” assessment..
Also note that in relation to capex spending, today’s WSJ is giving us a glimpse into how a dry credit market will ultimately slow business activity:
STMicro and Intel said financing for a new joint venture will be less than expected due to credit-market turmoil.
This should be one of the first of many similar announcements …
This is a soft landing?
The 3 month moving average of new orders is down -1.6% y/y (click on me for chart on my blog) any guess on what it was in the mid 1990’s during a real soft landing try +2.8%
While I like my chart better, Barry’s got it right as usual.
Michael, so we are landing on water without pontoons. Oh but they will spin it saying that it is only water. Who are these pundits saying that we are not going to have a recession?
http://online.wsj.com/public/article/SB119784514764832443.html?mod=blog
WSJ survey says 38% of economists are predicting a recession. That is a high number but still the minority. Then the WSJ goes on to list 5 reasons why we WON’T have a recession.
I’ve been planning to write a rebuttal to these 5 reasons, still hope to get to it.
Hey, on the bright side, all those orders being down means prices for those domestic goods won’t be rising much. As compared to everything made in China, where inflation expectations are soaring
Bloomberg
“Forward contracts show traders are betting on an 8.7 percent advance in the yuan to 6.7344 per dollar in the next 12 months”
as the chinese gov is indicating the trading band is about to widen. If import prices were high in 2007, this gives them a roaring start on 2008.
And since most everything at Walmart comes from there, that and $100 (or over $100) oil ought to do wonders for inflation expectations here.
I am also afraid that having run through MEW and now having run through credit cards, a healthy portion of American consumers will finally fall off the gravy train, unless Ben starts loaning them money directly from the fed (Think about it Ben, the “consumer discount window”). Or, since Wall Street won’t buy into it now, credit card companies could bundle up their debt and sell it to the Fed (CMHs – Collaterlized Moral Hazards.) Ok, that’s enough egg nog for me, I’ll sum up.
They can spin it anyway they want, it sure smells like stagflation to me.
Lewis
“Then the WSJ goes on to list 5 reasons why we WON’T have a recession.”
Well, that is a necessary part of their duty; try to reassure the suckers, so their masters can sell into the last gasps of this bull market.
Can’t say it will hold, but I have been enjoying the steady decline around the 13,488 dow. Charts are telling me sell, fundamentals are telling me sell, the macro is telling me to sell, but the buy on the dip, Dips are telling me to buy, buy, buy. Gee, I wonder why, are not these the gurus that are running the world’s money?
Who are these gurus on tv telling people to buy because all the news is negative? They aint seen nothing yet! How soon we forget what real unemployment is like, real stagflation. Gurus, wait until there is blood on the streets, there isn’t any yet!