Tags: Durable | Goods | Unemployment | Claims

Businesses Wary as Demand Falters for Big-Ticket Goods

Thursday, 26 Jul 2012 10:41 AM

INDICATOR: June Durable Goods Orders and Weekly Unemployment Claims

KEY DATA: Durables: Up 1.6 percent; Excluding Transportation: Down 1.1 percent; Claims: 353,000 (down 35,000)

IN A NUTSHELL: “Outside the surge in aircraft orders, the demand for big-ticket items faltered, indicating continued caution on the part of businesses.”

WHAT IT MEANS: Durable goods orders, which should be rising when the economy is doing well, did just that in June. So why am I so negative? It was all in aircraft. That’s nice but let’s face it: Boeing does not have the capacity to expand production anytime soon. Unfortunately, the demand for most other big-ticket goods moderated. Orders for computers, communications equipment, machinery, vehicles and fabricated metals were all off. Of course, most of those sectors posted gains in June so maybe we should just fall back on the usual refrain that durable goods orders are about the most volatile numbers we get. Rising shipments led to a modest thinning of order books, which had been filling solidly the past few months.

In a separate, and maybe more important report, unemployment claims declined sharply last week. I always warn that weekly data cannot be easily seasonally adjusted and when you consider that the vehicle sector changeovers to “new models” do not occur in the same orderly pattern as it did in the past, you can see how the claims numbers can be very glitchy.

Don’t be surprised if new claims jump next week. Smoothing out the ups and downs does give us a better picture of what is happening in the labor market and the trend is clearly down. It seems we have stabilized from the spring and early summer surge at a level that points to job growth a lot better than the 80,000 we saw in June. We should be adding something closer to 150,000 workers each month and that may start appearing when the July data are released at the end of next week.

MARKETS AND FED POLICY IMPLICATIONS:
The major improvement in the claims numbers should outweigh the weaker non-transportation orders report, at least when it comes to the markets. But the real story is the statement by European Central Bank President Mario Draghi to “do whatever it takes to preserve the euro.” Spanish rates fell sharply, taking some pressure off that country, which has been battered by fears the country would not be able to pay its bills. If Spain went, the next in line would be Italy, which is considered too big to fail and too big to save.

The European problem has hardly been resolved but it is being kicked further down than the road and that should make investors a lot less fearful.

As for the U.S. economy, most economists now feel that the gridlock in Washington that is making falling off the "fiscal cliff" a real possibility is harming confidence and growth. Imagine what conditions would be like if our elected officials could actually play nicely together. But they cannot. That unfortunate reality means we are not likely to see the fiscal problems addressed anytime soon, pointing to continued cautious business hiring and spending for the rest of the year.

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2012-41-26
Thursday, 26 Jul 2012 10:41 AM
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