Durable Goods: Ending the Myth of Recovery

by: Michael Shulman

A very bad report – 8% drop in non-defense, non-aircraft in durable good orders. Overall the orders were up 0.3% in the face of a consensus estimate of 2.5%.

This is the final nail – of four – putting to rest the myth of a recovery.

  • Housing is not rebounding – I have been writing on the housing Depression since February of 2007; the math has not changed in that time and there will be no stability in prices and a real world bottom until 2013. Scratch one source of employment, which accounted for 40% of new job creation between 2002 and 2007.
  • Public agencies are contracting – at the state, federal and local level. Government hiring has sustained overall employment numbers for several years and it is now reversing. Forty four states are facing deficits, and we are cutting back in Iraq, reducing military contracting. The federal budget is gong to be frozen or contracting next year. Scratch a second source of hiring.
  • Hospital admissions and medial treatments are down in the face of a recession and lower than forecast Medicare and Medicaid reimbursement rates. That means a reduction in employment in health care, something that has not happened in more than a decade. Scratch source number three of job creation.
  • Durable goods are in the tank. Factories are not buying more equipment, which means they are not hiring. Forget the nonsense in the S-1 filed by General Motors for its IPO, the car market is stuck in neutral, maybe 10.5 million units per year. No more hiring after this quarter and the hiring being done generates half the income of the older workers retiring. Scratch exports and manufacturing as the fourth source of hiring.
  • Oh, almost forgot - Wall Street is now cutting back, bonuses and hiring. A small but potential fifth source of hiring down the drain.

What is left? How about bullish pundits on CNBC. There seems to be an inexhaustible supply. This must be generating jobs.

Bottom line: No new jobs means reduced or stagnant national income which means a reduction in the growth of corporate profits, now slated for 14.5% growth in 2011. That, in turn, means the market is overvalued.

Disclosure: None