This whole week, I’ve been out of the office, and of course, each data release is I didn’t get a chance to review in real time had some significant hair on it.
Case in point: Durable Goods Orders. Indeed, yesterday’s rally was (ostensibly) attributed to the surprising strength in Durables.
Only not so much. When you consider the price rises that were included, the strength vanishes.
Goldman Sachs’ Jan Hatzius: Durable Goods Orders: Don’t Be Fooled by Inflation
Durable goods orders beat expectations with a 1.3% month-on-month increase in July. But the apparent strength is due to higher prices, not stronger activity. In fact, deflating orders by the producer price index for durable manufactured goods shows a 9.4% year-on-year drop in real orders, the worst since early 2002.
Even if we adjust for the unfavorable year-on-year comparisons that partly explain this plunge, the recent data look surprisingly similar to those seen in the runup to the 2001 recession.
Just like GDP — preliminary revisions for Q2 was released earlier today — and like retail sales, we see inadequate accounting for inflation that creates the illusion of growth.
We are a nation that is beyond denial — we are kidding ourselves. If we don’t start dealing with reality, it will be our undoing.