As Ever, We're Trying To Divine The Future
Our basic problem here is that we're trying to see what it is that's happening in the nuts and bolts of the economy in order to try to predict the future of that economy. We're divining in that archaic sense of the Roman priests looking at the entrails of the sacrificed animals. Fortunately, we're at least looking at things of some relevance.
As we do so the varied numbers are looking about right. We're not in a booming economy, not in the middle of a boom at least. But we're also not in a recession and the indicators we've got here don't lead to the conclusion that we're entering one either.
Durable Goods Up 2.1%
Durable goods are up 2.1% over the month:
New orders for manufactured durable goods in July increased $5.0 billion or 2.1 percent to $250.4 billion, the U.S. Census Bureau announced today. This increase, up two consecutive months, followed a 1.8 percent June increase. Excluding transportation, new orders decreased 0.4 percent. Excluding defense, new orders increased 1.4 percent. Transportation equipment, also up two consecutive months, drove the increase, $5.7 billion or 7.0 percent to $86.3 billion.
Or in graphic form:
(Durable Goods Orders From Census)
The thing to note here is that the numbers have been impacted all this year by the Boeing (NYSE:BA) problems with the 737 Max. No new orders for it, no deliveries of it. This has been skewing the durable goods numbers. As Moody's Analytics says:
The top-line increase in the advance durable goods print was led by the volatile non-defense aircraft segment, which jumped 47.8% mainly because of higher Boeing orders. However, new orders excluding transportation fell 0.4%, the largest decline since March. Shipments in the important core capital goods segment declined, their second month without an increase, and both orders and shipments in this category were revised sharply lower in June. While core capital goods orders—a proxy for business investment—increased for the third consecutive month, trend growth has decelerated sharply since late 2017, reflecting the broader pullback in capital spending.
Boeing's had other decent orders. But that's the only good part of that durable goods sector. But then, you know, up for a sector is up.
Inventories And Trade
We also have the numbers on wholesale, retail inventories and the goods trade deficit.
Or in numbers:
Inventories grew at a steady clip. According to the advance estimate, wholesale stockpiles rose 0.2% in July following a revised 0% in June. Retailers expanded by 0.8% over the month after a revised 0.3% fall in June.
The international trade deficit was $72.3 billion in July, down $1.8 billion from $74.2 billion in June. Exports of goods for July were $137.3 billion, $0.9 billion more than June exports. Imports of goods for July were $209.7 billion, $0.9 billion less than June imports.
It's The Trade That Matters
What we're finding is that it's really only trade that's making a difference here. On the inventories, as Moody's Analytics says:
Stockpiles are rising at a modest pace largely due to the threat of increased tariffs. Wholesalers and retailers are stockpiling durable goods targeted by the Trump administration's tariffs, and escalating trade tensions between the U.S. and China indicate the trend will not abate.
And on the goods trade deficit:
The narrowing in the U.S. goods deficit in July suggests net exports will be less of a drag on third-quarter GDP growth than previously thought. However, it will be interesting to see if there's any front-loading of imports ahead of the tariffs that were announced to go into effect on Sept. 1.
Trade is important, of course it is. The manner in which these numbers are being affected by it shows this. However, trade also is a smallish part of the US economy. Simply because the US is so large there's an awful lot of economic activity that occurs within it, rather than across the borders.
So, when we look at these numbers we are seeing the impact of trade problems. Plus, obviously, Boeing's issues. But other than that there's just nothing very much indicating an imminent significant problem with the US economy.
The Investor View
Other than those trade issues we do have a slowing economy, but an actual shrinkage of it isn't evident yet. There will be another recession at some point but it just doesn't look imminent. Thus there's unlikely, without new information, to be further Federal Reserve loosening of monetary policy.
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