Tags: bloom | trump | economic | rose

It's Beginning to Look Like Bloom Is Coming Off Trump's Economic Rose

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Thursday, 27 September 2018 03:55 PM Current | Bio | Archive

INDICATOR: August Durable Goods Orders, Pending Home Sales, 2nd Quarter GDP Final, Weekly Jobless Claims

KEY DATA: Durables: +4.5%, Ex-transportation: +0.1%/ Pending Sales: -1.8%/ GDP: +4.2%/ Claims: +12,000

IN A NUTSHELL: “It is beginning to look like the bloom is coming off the economic rose.”

WHAT IT MEANS: So, are businesses investing their booming profits on capital goods? I am not so sure. Demand for big-ticket items jumped in August, but that was due to a surge in aircraft orders. Since all that does is increase backlogs, not cause output to rise in the near term, it is best to look at the rest of the economy. Excluding transportation, orders rose minimally, though there were some sectors, including communications equipment, metals and electrical equipment that did see nice increases. Meanwhile, vehicles and machinery were down. More disturbing was a sharp drop in orders for private, non-aircraft capital goods orders, a proxy for business investment. That component had been surging, so maybe a soft month here or there should be expected.

Another housing number, another sign of growing weakness. The National Association of Realtors reported that pending home sales fell in August. There was weakness in all four regions. It looks like the softening in sales will continue.

The final, at least for now, measure of second quarter GDP was unchanged from the second reading. There were not major revisions. The only remarkable thing about this report was that the Bureau of Economic Affairs is either getting its act together or is totally confused: The three estimates were all within one-tenth of a percentage point of each other, which is almost unheard of.

The surge in jobless claims was hardly surprising. The level had been below extraordinarily low and now we are just back to extremely low. The labor market is tight, we all know that, so let’s not waste any more time on this number.

MARKETS AND FED POLICY IMPLICATIONS: Growth boomed this spring but the consistently asked question is: Can it be maintained? While the third quarter expansion looks to be very solid, it is not likely to come up to the standard set in the second quarter. Worse, momentum seems to be fading. The housing market is soft, wage gains are being offset by inflation and firms are using benefits, not wages, to up the compensation numbers. That doesn’t bode well for future consumer spending. And while one negative number is not a trend, the decline in capital goods orders in August could be an indication that investment spending will not be as robust as hoped for. All-in-all, this was not a good day for the economy. Since investors have adapted the Alfred E. Neuman philosophy of “What me worry?”, I doubt today’s numbers will do much to create major angst. If a Fed telling the world that a lot more rate hikes are coming doesn’t cause investors to become cautious, I am not sure what will.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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JoelNaroff
While the third quarter expansion looks to be very solid, it is not likely to come up to the standard set in the second quarter. Worse, momentum seems to be fading.
bloom, trump, economic, rose
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2018-55-27
Thursday, 27 September 2018 03:55 PM
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