Tags: Carr | durable | goods | slowdown

Stocks Are a Sell … According to New Orders for Durable Goods

By    |   Friday, 28 Sep 2012 07:44 AM

Durable goods orders fell off a cliff in August, reminding economists what economic data look like during a recession.

Durable goods are items that are intended to last — home appliances is one example in the consumer market and factory equipment is an example of durable goods in the business market. New orders fell 13.2 percent when compared with the previous month.

Data for this economic series extends back to 1992. This is the third-worst monthly performance in the 247 months that data have been available. The economy was in a recession the only two other times that durable goods fell more than 13.2 percent.

Orders were also down 6.7 percent compared with a year ago. Declines in this data on an annual basis have generally only been seen in bear markets for stocks. A drop of this size in durable goods orders preceded the devastating 2000 and 2008 bear markets.

This is the latest economic news pointing to an economic slowdown. At the same time as durable goods was announced, second-quarter gross domestic product was quietly revised down to 1.3 percent from an already anemic 1.7 percent. Slow economic growth usually lowers earnings for companies that trade on the stock market, and prices will fall along with earnings in most cases.

Economic news is pointing toward a decline in stock prices through the end of the year. The Federal Reserve is fighting that news with massive amounts of money under its quantitative easing programs. The Fed might win the battle in the short term, but prudent investors should consider the likelihood that there is little potential up side in stocks and a significant down side risk.

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MichaelCarr
Durable goods orders fell off a cliff in August, reminding economists what economic data look like during a recession.
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2012-44-28
Friday, 28 Sep 2012 07:44 AM
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