Lies, Damn Lies, and Durable Goods Statistics
If you believe the headlines, March durables orders were surprisingly strong:
New orders for costly and long-lasting U.S.-made manufactured goods climbed by a surprisingly strong 3.4 percent in March, according to a Commerce Department report on Wednesday that also showed businesses were continuing to invest to expand operations.
The pickup in March durable goods orders followed a revised 2.4 percent February gain and handily surpassed Wall Street economists’ expectations for a 2.5 percent increase. Even excluding transportation goods, which account for more than a quarter of overall business, March orders were up 1.5 percent after declining 0.4 percent in February.A key component of the monthly report that serves as a proxy for business investment, non-defense capital goods excluding aircraft, posted a 4.7 percent increase in orders last month. It was the biggest increase since September 2004…
Of course, we don’t automatically believe the headlines. For one thing, the change in durable goods statistics can be volatile from month to month. For another, the headline numbers reflect seasonal adjustments that may result in errors when the economy is at turning points. As is our practice, we looked at the durable goods report comparing non-seasonally adjusted numbers and focused on the year/year change. The difference between what we saw and the headlines was surprising, to say the least.
Instead of rising, the shipment and order growth has been decelerating and actually is not growth at all – it is a decline year/year.
Excluding transportation, the trend is smoother but otherwise the same. Clearly slowing and possibly even declining.
Ditto for non-defense capital goods ex aircraft. In contrast to the breathless headlines, all three measures show an economy that is slowing down considerably.
The one area that does appear to be strong is electrical equipment. Investors may want to look to this area for ideas.
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