Durable Goods Flat, Business CapEx Spending Falls

Thursday, December 27, 2007 | 09:16 AM

Durable Goods data was just released, and it warn't none too purty: +0.1%. That's far below the expected 2% consensus.

The weaker than forecast report was restrained in large part by a 24% drop in military buys (mostly a drop in aircraft). But even looking at the data Ex-defense equipment, spending rose only 1.2%, still far below the 2.0% consensus expectations, and below ~2% level of core inflation. Ex-transports fell 0.7% vs the consensus of up + 0.5%.

Economists polled seemed to have a surprisingly upbeat assessment of consumer and business spending -- the consensus ranged from +1.0% to 4.8%.

Non-Defense Capital Goods ex-Aircraft -- the pure cap ex spending component -- fell 0.4%. This comes on top of a 2.9% drop in October. Thus, it appears the tiring consumer is no longer alone: Businesses are also throttling back major purchases of capital equipment.

"Demand for capital goods also softened, suggesting business investment will be a drag on economic growth. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 0.4 percent after a 2.9 percent decrease in October that was larger than previously estimated. Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after dropping a larger-than- previously-estimated 1.2 percent in October."

The 0.1 percent increase, the first gain in four months, followed a revised 0.4 percent drop in October that was larger than previously reported, the Commerce Department said today in Washington. Excluding transportation, demand fell 0.7 percent.

In other words, had October not been revised downwards, November data would also have been negative. Weaker CapEx spending is but the latest sign of a slowing economy.

But wait -- wasn't Business Spending going to "take the baton" from consumer spending as we heard time and again? (I guess not).

Bloomberg explains the reasons why:   

"Tougher lending standards, bloated inventories and slowing sales are causing some companies to limit spending on equipment such as communications gear and machinery. The report suggests the worsening housing recession may be spreading to other parts of the economy.

Gee, who could have ever seen that one coming . . . ?

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Durable_goods_orders_2


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Sources:

ADVANCE REPORT ON MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS (November 2007 )
8:30 A.M. EST December 27, 2007
http://www.census.gov/indicator/www/m3/  (PDF)

U.S. Durable Goods Orders Gain Less Than Forecast
Courtney Schlisserman
Bloomberg, Dec. 27 2007    
http://www.bloomberg.com/apps/news?pid=20601087&sid=az4I__0qYePE&

Thursday, December 27, 2007 | 09:16 AM | Permalink | Comments (11) | TrackBack (0)
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Comments

Glad to see this on your blog and an update from a rational economic perspective. The spin on the other sites and news is getting a little old with 'all is OK' ignore the cost of energy, ignore real estate, ignore consumer spending, ignore the international risk aspects, ignore the election yet do not ignore our opinion based on spinning the data. Appreciate your voice and economic perspectives.

Posted by: Jrs | Dec 27, 2007 10:32:02 AM

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