Mixed Capital Goods Spending

Just a brief note on today’s durable goods orders. They fell slightly – by 0.1% – in August, which suggests continued sluggish growth for the economy as a whole. The decline was driven, excuse the pun, by a 8.5% drop in motor vehicle purchases by business, and by a 5.7% decline in large defense goods. Other categories of durable goods showed a much more robust pattern with technology related equipment doing particularly well. So while the headline figure is a disappointment it is largely the result of large shifts in some sectors which were not completely offset by only decent sized shifts in others. Orders for computers, for instance, rose 5.5%, and orders fro communications gear rose 7.7%. Both these latter categories had experienced large declines the month before, so we ought to average through the two months to arrive at a better understanding of the overall trajectory for orders, which is not as bad as today’s report indicates by itself.

This is not to suggest that the numbers were strong. I am simply pointing out that this is yet another report that supports the general picture of sideways drift.

Shipments of durable goods – as opposed to orders – rose only 0.2% in August. Since this is what shows up in GDP accounting I think it safe to assume capital goods spending will continue to provide a very modest boost. Meanwhile inventories rose 0.9%. How we interpret this is difficult to say. I would be surprised if it represented an effort by business to stash away goods because they predict stronger sales in the next few months, so the more likely story is that this was an accident of accounting and timing that will fade away next month. Still it is something to watch. The bigger questions surrounding the outlook for growth are all about personal consumption. And that remains steadfastly stuck.

What does this mean for GDP? I see no reason to change my opinion that the economy will plod along at between 1.5% and 2.0%.