Tags: Goods | durable | US | Economy

Goods Data Show US Economy Growing Despite European Fears

Wednesday, 27 Jun 2012 10:28 AM

INDICATOR: May Durable Goods Orders

KEY DATA: Orders: Up 1.1%; Excluding Transportation: Up 0.4%; Business Investment: Up 1.6%

IN A NUTSHELL: Rising big-ticket orders indicate that Europe may be a real problem but the U.S. economy is still growing.

WHAT IT MEANS: Surprise, surprise, orders for the most expensive goods surged in May.

Of course, the increase didn’t wipe out the declines we saw in March and April, but hey, in this worrisome environment, I will take the good news when I get it.

The increase in demand for durable goods was pretty much across the board led by a sharp rebound in computers, communications equipment and machinery.

The hugely volatile aircraft sector did play a major role in this gain but the rise in orders was not off the charts. The key measure of business investment activity, non-defense, non-aircraft capital orders, surged, showing that there was still some life in corporate hopes for the future.

Indeed, with non-transportation order books filling nicely, production could start picking up.

MARKETS AND FED POLICY IMPLICATIONS: This was a really good report in the midst of all the uncertainty over Europe. Of course, it is for May and June was not a good months for the continent so we cannot bank on firms continuing to make major purchases.

Indeed, as long as the European issues persist, and they will for quite a while, any firm that depends significantly on business in that part of the world will have to be very cautious. That puts much of the burden of economic growth on the backs of U.S. consumers.

Unfortunately, household incomes are going nowhere and falling business confidence will not lead to a needed jump in hiring or larger wage increases.

Thus, the trap we are in will continue and growth will not accelerate sharply regardless of what comes out of Washington, which we know will be nothing until next year.

The Fed members know this but they also realize there is really little they can do. Another round of quantitative easing may help the stock markets but the average household is hardly spending that wealth, so the impact on the real economy is minimal.

Those in the investment field may demand it but only because financial asset prices increases, not because the economy accelerates. As for “Operation Twist,” the FOMC had to make believe it was doing something as low longer-term rates should, in theory, increase capital investment.

Of course, would a 1.25 percent 10-year create a whole lot more spending than a 1.60 percent 10-year? I doubt it as the issue is not rates but growth expectations, which gets us back to Europe. When you have a global economy, you have to take the good with the bad and right now we have mostly bad.

© 2017 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
463
2012-28-27
Wednesday, 27 Jun 2012 10:28 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved