September Durable Goods Orders

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: September Durable Goods Orders
KEY DATA: Orders: -0.8%; Excluding Aircraft: +2.0%; Backlogs: +0.8%

IN A NUTSHELL: “Businesses continue to invest at a robust pace and that bodes well for not just current but future growth as well.”

WHAT IT MEANS: Can we finally put to bed the notion that the economy is teetering on the brink of a double-dip recession? Durable goods order fell in September but only because the hugely volatile aircraft sector tanked. Excluding both domestic and defense aircraft orders, where increases or decreases don’t do much to near term activity, demand for big-ticket items soared. Strong gains were reported in computers, metals, machinery and electrical equipment. The closely watched measure of business capital spending, non-defense/non-aircraft capital goods orders, jumped sharply. There were some declines in communications equipment and vehicles but with vehicle sales firming, that is likely to reverse in the future. Looking outward, the rising orders are causing backlogs to build dramatically and that implies industrial production and most likely hiring will be solid in the months to come.

MARKETS AND FED POLICY IMPLICATIONS: This was a robust report that continues the long line of data that indicates the economy did pretty well during the summer. It is hard to believe that businesses would invest heavily if they are not seeing the demand needed to support those expenditures. We get GDP tomorrow and I think it could surprise by coming in over 3%. Whether that calms nerves about the economy is a different story, since job gains continue to lag. Until payrolls rise more rapidly and the unemployment rate falls, the perception will be that the economy is in the dumps. Clearly, it is not. As for investors, it still seems to be about Europe and for fairly good reason. While most economists agree that the alternative to a decisive solution of the sovereign debt issue is chaos, that doesn’t mean the politicians believe that to be the case. So every time things look bright, the markets soar but when a solution gets pushed down the road, investors panic. Until a defensible policy is agree upon, look for market volatility to continue even if it appears that the U.S. economy is healing.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

December Durable Goods Orders

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist 

INDICATOR: December Durable Goods Orders

KEY DATA: Orders: -2.5%; Excluding Commercial Aircraft: 0.0%; Non-Defense, Non-Aircraft Capital Goods: +1.4% 

IN A NUTSHELL:  “The demand for capital goods on the part of business is still strong as it looks like investment will continue to boost growth.”  

WHAT IT MEANS:  Spending on big-ticket items, a key indicator of growth, seems to be holding up pretty well.  Yes, durable goods orders declined in December but that was due to a 99% drop in civilian aircraft orders.  It looks like there was only one order for a two seat Cessna.  Obviously, this is a very volatile component but for all of 2010, civilian aircraft orders were up a massive 66% compared to 2009 levels.  Excluding commercial aircraft, demand was flat in December.  More importantly, though, was the measure of corporate capital spending, which rose solidly.  Non-defense, non-aircraft capital goods orders posted a nearly 17% rise for all of 2010, a sign that businesses may not be hiring but they sure are getting their capital stock up to speed.  The December report, though, was decidedly mixed.  Orders for communications equipment, machinery and vehicles rose but were off for primary and fabricated metals, computers and electrical equipment and appliances.  In addition, backlogs slipped and inventories rose.  That is not the direction you want to see those categories go if you like expanding production.  

MARKETS AND FED POLICY IMPLICATIONS: This was a decent though not spectacular report.  Critically, businesses are spending money on capital goods and while that negates some of the need for workers, it still is a sign that the economy is moving forward.  Investors will like this report but there was a huge weather-driven surge in new unemployment claims that may raise some eyebrows.  The claims data have been bouncing around much more than normal with horrible weather (I am looking at about eighteen inches of snow outside my house) and government policy flip-flops messing up the normal patterns.  Thus, don’t take the rise as pointing to a weakening in the labor market.  But it is a warning that job growth remains softer than anyone would like and that is restraining consumer spending and overall economic growth.  The FOMC focused on that problem in yesterday’s meeting statement.  The January jobs report is a week away so let’s wait and see what comes out of those numbers.  If there is any warning, it is that weather could play a major role in keeping the gains down.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advise, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

November Income and Spending

NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

 

INDICATOR: November Income and Spending

KEY DATA: Consumption: +0.4%; Disposable Personal Income: +0.3%;

IN A NUTSHELL:   “Households may not be shopping ‘till they drop but they are out there buying and that steady, solid pace is sustainable.” 

WHAT IT MEANS:  Bubbles are nice when they are made of glass and hung on trees.  They are not a lot of fun when they cause huge ups and downs in the economy.  That is why I have said on many occasions that I look for consumers to shop ‘till they’re tired not until they drop and that seems to be the case.  Consumption rose for the fifth consecutive month in November and while the pace was not spectacular, it was solid enough.  People bought the little things that make them happy as soft-goods and services spending rose.  They didn’t go out and buy big-ticket items, which were down slightly, but that is okay.  The concentration on the smaller ticket goods is the first step in the spending recovery.  Once job growth picks up, I expect durable goods purchases to rise more strongly.  Nevertheless, with the October spending pace revised upward and the reports of a strong December shopping period flowing in, I would not be surprised if consumer spending grows at a robust 4% or more pace in the fourth quarter.  That would lead to faster than currently projected GDP growth.  While income gains did not keep up with outflows of money, the savings rate is still at a decent 5.3% level.   The one disappointment in the report was the gain in wages and salaries.  This part of income had been increasing solidly but the November rise was less than hoped for.  Still, this component has been somewhat volatile so I wouldn’t be surprised if it bounces back in December. Indeed, the slow decline in unemployment claims tells me the labor market is continuing to firm.      

MARKETS AND FED POLICY IMPLICATIONS: The consumer is back, maybe not in full battle regalia, but households are buying goods strongly again.  The pace of spending is sustainable and as job gains and confidence improve I expect consumption to increase as well.  What we don’t see in this report are irresponsible households that are destroying their balance sheets.  The savings rate is still high enough to allow for a reduction in debt burdens.  Basically, the household sector is doing its part in driving the recovery and with businesses spending on capital goods, as we saw in the durable goods report, the upturn has clearly moved from the government to the private sector.  That is the best news we could have as we close 2010.