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Steven Hansen
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Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
My company:
Econintersect LLC
My blog:
Global Economic Intersect
  • Disregard Durable Goods Data 1 comment
    Jul 26, 2014 8:11 AM

    The headlines say the durable goods new orders improved in June. Our analysis disagrees with the rolling averages declining. Note that the Federal Reserve's Durable Goods Industrial Production Index also improved.

    So here you have it - the headlines (which use a seasonal adjustment formula where up is down) and the Federal Reserves Durable Goods Industrial Production Index improved in June - and our analysis says the opposite using the raw unadjusted data. This is not a little difference this month - but a massive difference including a huge difference in year-over-year growth which normally is similar.

    Econintersect Analysis:

    • unadjusted new orders growth decelerated 0.4% month-over-month , but is up 0.7% year-over-year.
    • the three month rolling average for unadjusted new orders decelerated 3.2% month-over-month, and up 3.0% year-over-year.
    Year-over-Year Change of 3 Month Rolling Average - Unadjusted (blue line) and Inflation Adjusted (red line)

    (click to enlarge)

    • Inflation adjusted but otherwise unadjusted new orders are down 2.0% year-over-year.
    • The Federal Reserve's Durable Goods Industrial Production Index growth accelerated 0.1% month-over-month, up 5.5% year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is accelerating.
    Comparing Seasonally Adjusted Durable Goods Shipments (blue line) to Industrial Production Durable Goods (red line)

    • unadjusted backlog (unfilled orders) growth decelerated 1.1% month-over-month, up 6.6% year-over-year.
    • according to the seasonally adjusted data, military aircraft new orders again were very strong.
    • note this is labeled as an advance report - however, backward revisions historically are relatively slight.

    Census Headlines:

    • new orders up 0.7% month-over-month.
    • backlog (unfilled orders) was up 0.8% month-over-month - and remains at a historical high.
    • the market expected:
      Consensus Range Consensus Actual
    New Orders - M/M change -0.5 % to 1.5 % 0.5% 0.7%
    Ex-transportation - M/M 0.3 % to 1.8 % 0.7% 0.8%

    Durable Goods sector is the portion of the economy which provides products which have a utility over long periods of time before needing repurchase - like cars, refrigerators and planes.

    Econintersect concentrates on new orders as it is the entry point for future production - and somewhat intuitive economically.

    Indexed and Unadjusted Durable Goods New Orders - Orders (blue line) and Orders less Transports (red line)

    The long term trend in unadjusted new order growth for the last 3 years seems to be growth is noisy but remains in a narrow growth channel.

    Year-over-Year Growth Durable Goods New Orders - Unadjusted (blue line) and Inflation Adjusted (red line)

    The above graphic shows both the year-over-year change for unadjusted new orders and inflation adjusted new orders using the PPI for inflation adjustment.

    For unfilled orders (graph below), the growth trend (red line in graph below) is mixed depending on periods selected.

    Unadjusted Durable Goods Unfilled Orders - Current Value (blue line, left axis) and Year-over-Year Change (red line, right axis)

    To visualize the drivers of durable goods - the chart below shows transport (mostly aircraft is the volatile element in durable goods.

    Unadjusted Durable Goods New Orders Year-over-Year Growth - Consumer Goods less transport (blue line), All Durable Goods (green line), and Transport (red line)

    FRED Graph

    One final look at the Durable Goods data in our search for a slowing economy is for inventory buildup. Although this series is noisy, it appears inventory levels have remained in a narrow range since the beginning of 2010.

    Unadjusted Inventory to Sales Ratio

    Because of the huge discrepancies this month between US Census, the Federal Reserve, and Econintersect - it is best not to think too deeply about this data set - and wait for next month to see if we get better correlation.

    Other Economic News this Week:

    The Econintersect Economic Index for July 2014 is showing continued growth acceleration. Outside of our economic forecast - we are worried about the consumers' ability to expand consumption because the ratio between income and expenditures continues near all time highs. The GDP contraction for 1Q2014 is a paper contraction as GDP is determined by playing games with accounts. For 2Q2014 GDP, the trade balance will be a serious headwind.

    The ECRI WLI growth index value has been weakly in positive territory for many months - but now in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 305,000 to 320,000 (consensus 310,000) vs the 284,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 309,250 (reported last week as 309,000) to 302,000.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)

    (click to enlarge)

    Bankruptcies this Week: None

    To view all of our analysis this week - [click here].

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • Robcarter.VN
    , contributor
    Comments (11) | Send Message
    Steven you really have a chartreader mind.


    You see what I don't I look 100 years past and today and go from there.
    28 Jul 2014, 12:49 AM Reply Like
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