Durable Goods New Orders Improves in July 2011 – No Recession?

Durable goods new orders headlines in July 2011 show a month-over-month expansion of 4% (seasonally adjusted data). Econintersect’s analysis of the unadjusted data says shows an expansion of 1.9% – and backward revision of last months data now shows an expansion of 0.8% last month.

Econintersect does not believe the seasonally adjusted data is properly conveying the nuances of this sector.  Our conclusion is that durable goods is not reflecting that a consumer contraction was underway in July – but the expansion is fairly weak.  The USA economy is consumer driven.

There were no major drivers in the numbers (weak strength across most categories), however government defense spending is down.

Durable Goods 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.

July historically is a month with lower than average durable goods sales (new orders). It may be difficult to see in the above graphic how large the shortfall was in July 2011. The following graphic shows the running year-over-year new order improvement.

Also added in the above graphic is an inflation adjustment. Durable goods is reported in current dollars, and cost inflation has occurred over time. In July 2011, there is a 1.9% growth year-over-year using the Producer Price Index (PPI) finished goods cost inflation index.  The new inflation adjusted number for June 2011 is 0.9%.

Depending how you look at the data, inflation adjusted sales for the last three months on average is growing faster than population growth.  However, the data remains inside of a 12 month downtrend (slowing growth) – and inflation adjusted growth would have to more than double to break this trend line.

Overall, the question on most people’s minds is whether the economy is entering a recession.  This data short term is inconsistent with a recession scenario, but looking at a longer term the slowing growth keeps the recession scenario on the table.

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