Thursday, January 27, 2011

Capital Goods: Pause or Stall?

The Lehmann Letter (SM)

Is the economic recovery on track for rapid expansion, or is the good news just a head feint?

This letter has noted that some of the most important indicators are still in the doldrums. There are encouraging signs, yet they remain too few to indicate a trend. Yesterday's letter featured an example: New-home sales are up, but have not broken into optimistic territory.

This morning's Census Bureau report on durable goods further illustrates the problem:

Here are December, November and October 2010 data on new orders for nondefense capital goods (machinery and equipment): $61.4 billion, $65.5 billion and $71.3 billion. Since the most recent month is presented first, these figures are not encouraging.

Removing volatile orders for aircraft smoothes the numbers: $65.0 billion, $64.1 billion and $62.2 billion.

That's better: It looks like a slight upward trend. (Remember: Most recent data first.)

Now place these numbers in historical perspective by using your mind’s eye to update the chart.

New Orders for Nondefense Capital Goods

(Click on chart to enlarge.)

Recessions shaded

There is no doubt the situation has improved. Yet it's also apparent that it's too early to call a positive trend. For that to happen there has to be clear movement up from $60 billion toward $80 billion.

It's not that we're stuck in a rut. It's just too early to proclaim that the expansion is proceeding at a robust pace.

(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.)

© 2011 Michael B. Lehmann

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