(Click to enlarge)
July new orders for capital goods were down a steep 8%, much weaker than expected. Is this hard evidence of a double-dip recession? While it shakes my confidence, I think there is a good chance that the weakness is an artifact of poor seasonal adjustment. Both Brian Wesbury and our own "brodero" noted today the pronounced tendency of this series to drop on the first month of every quarter: "this is the eighth consecutive first month of the quarter (January/April/July/October) where machinery orders have dropped, with the typical decline being around 9%."
The top chart shows the raw (seasonally adjusted) data. The second chart uses a 3-month moving average, and it should be immediately obvious that this removes a lot of the noise in the raw data without changing its character or its signal. The third chart shows the 6-month annualized growth in the moving average.
Regardless of how you massage the data, the story remains the same: over the past year, the rebound in capital spending by U.S. corporations has been quite strong and is likely ongoing. This is an important indicator not only of business confidence, but also of the economy's ability to grow in the future, since capital spending is the raw material necessary for future productivity growth.