Durable Goods Start To Suggest Summer

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By Jeffrey P. Snider

The seasonal spring rebound seems to have reset all the economic narratives. When economic accounts, along with financial markets, started to seriously slide toward the end of last year, for the first time even the mainstream began to admit, grudgingly, that weakness wasn't just some remote happenstance that was a minor nuisance to an otherwise robust US economy. The idea of recession was no longer so far-fetched, as the downdraft was clearly not just a foreign occurrence spilling over domestically.

As the seasonal swoon subsided, the collective sigh of relief erased all those memories. We are apparently back in the middle of 2015 again, where any weakness is once more some remote, unrelated aberration.

Demand for long-lasting factory goods fell sharply in June, a sign overseas turmoil is weighing on U.S. manufacturers.

I sort of expected that the sentence quoted above would be immediately followed by "manufacturing is only 12% of the economy." Maybe it is because the FOMC is meeting today and that, to the media, their job is only to debate just how great the US economy is, the impulse to deny context is much stronger than usual. As with so many other economic accounts, however, durable goods are already well into their second lap of contraction. It is difficult, if not impossible, to consider how the US economy is in any condition outside of serious trouble where durable goods new orders (ex transportation) can decline in 18 out of the past 20 months (17 out of 20 for shipments).

Common sense dictates something other than "overseas" problems. But this discrepancy isn't even limited to the past two years. It is an ongoing mush of unprecedented stagnation, tracing back more than four years. The media can avoid commenting directly on the US economy, sticking with unspecified "overseas" weakness, because it is stuck in some purgatory between recession and growth. Since orthodox theory posits that if the economy isn't in recession it must be in growth, that is the default categorization, no matter how many times confusing and "unexpected" setbacks occur.

The preliminary update for June 2016 durable and capital goods was uniformly ugly. The seasonally adjusted numbers, both with and without the volatile transportation sector, were atrocious. At $219.8 billion, the seasonally adjusted level (ex transportation) was the lowest since the summer of 2013. Unadjusted, the year-over-year figures contracted across the board at rates equivalent with the end of last year and the start to this one. Durable goods shipments (ex transportation) were down 3.3%, the worst since January. New orders were down 3.7%, the biggest negative since last September.

ABOOK July 2016 Durable Goods Orders YY

Capital goods (non-defense ex aircraft) orders fell 4.2% in June from June 2015, while shipments declined sharply by almost 6%. In both segment averages, we find that the contractionary circumstances appear to be picking up even more so than at the end of 2015, when commentary was more realistic.

It wasn't until July 2015 (estimates released at the end of last August) that durable and capital goods began their seasonal summer swoon. These numbers for June 2016 may suggest that the usual "rising dollar" turn lower may be a month early, or it may be that it is really indistinguishable as to exactly when the spring rebound ends. Whatever may be the case, these estimates for durable goods suggest that spring may be over and summer may have already begun. The contraction of the past two years remains with all its seasonal distortions (particularly to mainstream narratives), and all part of four years of peculiar and very important stagnation.

While the media wishes to avoid the subject, durable goods even provide a direct clue as to the overriding economic problem - and it isn't overseas. The primary source of economic weakness, as if political unrest weren't enough of a clue, is and has been US consumers. The evidence is found in numerous places across a number of separate data series; the Commerce Department's durable goods data matches the Federal Reserve's index for Industrial Production and its consumer goods sub-component. Global economic weakness starts right here, exactly where it "shouldn't." That sentence, far more than the one quoted above, explains everything.

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