Durable Goods Continued to Show Growth in October 2011

Durable Goods data was mixed in October 2011 – but continued to show moderate year-over-year growth.  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.

US Census Headlines:

  • new orders down 0.7% month-over-month
  • backlog (unfilled orders) up 0.2% month-over-month

Econintersect Analysis:

  • new orders up 2.7% month-over-month, and up 6.9% year-over-year
  • production (inflation adjusted using Industrial Production – durable goods) up 0.1% month-over-month, up 7.8% year-over-year
  • backlog (unfilled orders) down 0.3% month-over-month

The drag this month on new orders were transports – civilian aircraft.  All other major portions of durable goods were moderately positive.

Historically October is a month with lower durable goods sales (new orders) than Septembers. It may be difficult to see this in the above graphic because the comparison with previous months is not that clear.

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. This inflation adjustment methodology has the month-over-month improvement at 3.1% and year-over-year at 3.1%.

As an alternative, instead of trying to use inflation adjustments – we can view this industry using Industrial Production – Durable Goods to see the real growth and associated trends – and the trend is flat, meaning that the rate of growth is neither up or down.

However, durable goods unfilled orders declined 0.3% month-over-month.  There is no obvious reason as unfilled orders are not that seasonal.

Caveat on the Use of Durable Goods

The data when first released is subject to several months of revision.  The revisions currently have been minor – making the initial headline data reasonably accurate in real time.

The data in this series is not inflation adjusted – and Econintersect adjusts using the appropriate BLS Producer Price Index for durable goods or uses Industrial Production (IP) – durable goods sub-index which is a non-monetary index.

As in most US Census reports, Econintersect does not agree with the seasonal adjustment methodology used and provides an alternate analysis.  The issue is that the exceptionally large recession and subsequent economic roller coaster has caused data distortions that become exaggerated when the seasonal adjustment methodology uses several years of data.  Further, Econintersect believes there is a New Normal seasonality and using data prior to the end of the recession for seasonal analysis could provide the wrong conclusion.

Durable goods expenditure is a major element of GDP.  Therefore may pundits look for enlightenment within the durable goods data for economic direction.  To illustrate how durable goods new orders and backlog fits into a recession watch, the Fred graph below (produced based on August data) shows clearly that data trends down preceding a recession. Unfortunately, there are several false indications of recessions.

More importantly, durable goods as discussed in this post is not the durable goods of the consumer – as it includes business and government consumption while excluding imports.  For a better understanding of consumer demand for durable goods, the BEA’s Personal Consumption Expenditure’s Durable Goods data series should be used:

Durable goods is not a good economic forecasting tool as it contains too many false warnings of economic contraction.

Addendum for Discussion of Comments:

The following graph removes military and aircraft:

The following graph shows consumer demand (theoretically backing out business).  However, it appears this data set only includes 25% of consumer spending on durable goods (for sure it leaves out imports).

The following graph uses Personal Consumption Expenditures series to look at durables:

Related Articles

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