The labor market may be facing new challenges, but new orders for durable goods rose again last month. This leading indicator of future economic activity increased 3.0% in January, the Census Bureau reported this morning. That’s good news, of course, although we’re in no mood to celebrate, given the apparent reversal of fortunes in jobless claims, as we discussed in our previous post.
Nonetheless, as our chart below shows, new orders for durable goods have made some progress in bouncing off the lows from early 2009. We can debate the source of the rebound, ranging from the natural tendency of an economy to right itself after a shock to the various efforts by the government to juice spending. More importantly, it's debatable if this and other leading indicators are as valuable this time around as forward-looking metrics of the broad economic trend. But if we ignore all that for a moment, the rebound so far in this series is encouraging. (Click to enlarge)
As Pimco’s Tony Crescenzi explained a few years back, it’s the trend in such measures that provides clues about the future. “Persistent strength in durable goods orders should be taken as a sign that both consumers and businesses are confident enough in the economy to engage in spending on big-ticket items,” he advises in The Strategic Bond Investor : Strategies and Tools to Unlock the Power of the Bond Market.
The broad trend for durable goods orders is unmistakably up in recent months. The question is whether the rise can persist if—if—the labor market is set to move sideways, or worse, in the foreseeable future? This debate is all the more potent if we recognize that January’s strong rise in durable goods orders was largely driven by civilian aircraft orders, which are quite volatile from month to month. Alas, excluding transportation reveals that new orders for durable goods actually fell last month, slipping 0.2% from December’s level.
Yes, the overall durable goods trend is encouraging. But even if we take this at face value, we can't ignore that it’s a jobless recovery so far. As long as that qualification remains, the bullish aura surrounding leading indicators is suspect.