Thursday, May 29, 2008

Capital Goods


Yesterday’s Census Bureau report on orders and shipments of durable goods
( confirmed, once again, that new orders for business equipment are flat and have been flat for some time.

Here are the most recent numbers:

April = $74.4 billion
March = $75.4 billion
February = $74.4 billion

The following chart confirms that new orders have stalled, fluctuating in a range, for about two years.

New Orders for Nondefense Capital Goods

(Click on chart to enlarge)

Recessions shaded

That’s troubling for two reasons.

First, it seems that the expansion is over. This series is a leading indicator of business investment in new equipment. If it’s flat, that’s a signal that industry has stopped building its productive capacity.

Second, if we are in a recession and this series begins to head south as business expansion turns into business contraction, then this will have been one of the weakest expansions on record. Note that new orders doubled in most decades since 1960 and also doubled between recessions except for the back-to-back 1980 and 1981 - 1982 recessions. This time new orders barely exceeded their earlier peak. True, the decade is not over. But if the series fades it will soon fall below its 2000 level.

What happened to the New Economy? It was supposed to spew forth ever-larger quantities of new innovations that business eagerly installed. Has technology gone flat? That would be scary.

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2008 Michael B. Lehmann

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