Durable goods orders surprise to upside / Income

Durable Goods orders in Nov were better than forecasted up .7% headline, 1.6% ex transports and 2.7% for non defense capital goods ex aircraft vs expectations of up .3%, down .2% and flat respectively. Also positively, Oct was revised higher. Putting into perspective though, headline orders are up just .5% y/o/y, flat ex transports and up only .3% at the core cap ex level. Within the details, vehicle/parts orders rose 3.5% more than offset by a 13.9% in nondefense aircraft. Order gains were seen in metals, machinery, electrical equipment and a tiny gain for computers/electronics. Shipments, which go right into GDP, were up 1.5% after a .1% gain in Oct and because inventories were up just .2%, the I/S ratio fell to 1.65 from 1.67. Backlogs rose .1%. Bottom line, after weakness seen in the June thru Sept timeframe where core cap ex orders fell to the lowest since Feb ’11, they have bounced back over the past two months to the most since June notwithstanding the cloudy visibility seen in economy’s overseas and with our own political process. Cap ex has been a drag on economic growth during 2012 and we’ll see if the uptick in the past few months is sustainable into 2013.


Personal Income in Nov rose .6% m/o/m, twice expectations while Spending was up .4%, in line with estimates. Because the headline PCE inflation deflator was down .2% m/o/m, REAL income was up .8% and REAL spending was up by .6%. Core PCE was flat and the y/o/y gains are 1.4% headline and 1.5% core. The PCE is now the preferred inflation gauge of the Fed because I guess they don’t like the more housing heavy CPI which has been more elevated than PCE because of rising rents. The income bounce in Nov follows the Oct decrease in wages and salaries which “reflected work interruptions caused by Hurricane Sandy” according to the BEA. The y/o/y gain in wage and salary is 3.6% with a 4.1% rise in overall income. It’s an improvement to the best since Oct ’11 but still below the average in the 20 yrs into Sept ’08 of 5.6%. The Savings Rate rose to 3.6% from 3.4%. Bottom line, with revolving consumer credit outstanding hovering around the lowest since late ’05 and the consumer’s desire to further deleverage, income growth is the important statistic in leading consumer spending higher as more production and eventually more hiring will follow that. The Savings Rate at 3.6% remains well below the average since data going back to 1959 of 6.9% and the more limited access and desire for credit must be offset by higher income and savings. The savings part is being made much more difficult by the Fed of course. There is more than $8T of national savings yielding almost nothing where just a 1% fed funds rate would be $80b+ extra into the hands of savers.

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