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Durable Goods: Bleech

Posted By Barry Ritholtz On April 28, 2005 @ 6:55 am In Economy | Comments Disabled

Overlooked in yesterday’s Oil-a-palooza [1]was March’s data on Durable Goods. To say the least, the number stunk the joint up. I expect there is a ways to go before we are in danger of a recession –like 12 to 18 months, this number merely confirms our prior expectations of fading stimulus in the post-bubble environment.

This is the 3rd month in a row Durable-Goods Orders declined; Add to that the ongoing softening of LEI data. Soft patch? Puh-leeze. My working assumption is that anyone spouting that nonsense has a soft patch of skull, covering an even softer patch of gray matter.

 

The chart is rather revealing:

click for larger chart

Orders_for_durable_goods [2]

Source:  Briefing.com, WSJ [3]

Wsj__economy04272005205158_2 [4]Allow me to take this moment to trash some of my fellow pundits, commentators, and Wall Street colleagues. I’ve been reading (mostly from the Bulls) an unholy assortment of laments about this data. They have used it as an excuse to ratchet down GDP numbers, SPX expectations and other data points.

While we should always welcome signs of flexibility and the willingness to admit error (a relative rarity on Wall Street), lets also recognize that advice telling someone to close the barn door after the horse runs away is really not worth all that much.

The prior expectations for GDP numbers (out at 8:30 today) and Personal Income and Spending (tomorrow) reveals a fundamental lack of understanding of where we are in the cycle. Telling us about it afterwards is pretty pointless from an investment perspective. And you can see how much less than worthless — i.e., costly — it has been to remain fully invested. Funny, the underlying economic weakness was visible to anyone who was willing to drill down and do the heavy lifting. Its only now being revealed to the headline reading public (oh, and that’s another wonderful investment strategy — wait til the news is headline material!)   

You know my views on NFP, GDP and Income for some time now.These are the sorts of data points which strategists and economists should be looking to before they are released . . .

Here’s the data overview from the WSJ [3]:

Highlights

  • March durable goods orders -2.8%, -1.0% ex-transportation.
  • Feb revised to a -0.2% decline from 0.5% gain to leave only declines in 2005
    to date.

Key Factors

  • Final Q1 GDP input prior to release and will force strong downward revisions
    to business investment.
  • The strong 2005 declines and run off of the strong 6% year ago gain sliced
    annual growth to -3% yoy from 11% yoy in Jan.
  • Y-o-y capital goods (and ex-defense, ex-def/aircraft) are also lower than a
    year ago.  Ex-transportation at 3.4%.
  • March non-defense capital goods orders dover -6.2%, ex-def/aircraft fell
    -4.7%.  Transportation orders plunged -7.8%.
  • The severe decline and downward revisions removes the shine from 2005
    business investment as …
  • strong profits and large corporate cash flows continue to support business
    investment after the tax related downturn.

Sources:
March Data Show Big Drop in Orders Of Durable Goods [5]
Michael Schroeder
The Wall Street Journal, April 28, 2005; Page A2
http://online.wsj.com/article/0,,SB111460455435918206,00.html


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URL to article: http://www.ritholtz.com/blog/2005/04/durable-goods-bleech/

URLs in this post:

[1] Oil-a-palooza : http://bigpicture.typepad.com/comments/2005/04/petroleum_day_w.html

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/orders_for_durable_goods.gif

[3] WSJ: http://interactive.wsj.com/documents/bcom-fuecdurord.htm

[4] Image: http://bigpicture.typepad.com/photos/uncategorized/wsj__economy04272005205158_2.gif

[5] March Data Show Big Drop in Orders Of Durable Goods: http://online.wsj.com/article/0,,SB111460455435918206,00.html

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