Econintersect warned in its April 2011 economic forecast that the economy was at a cycle peak. April 2011 advance durable goods new orders were weak, but what should catch your eye is the break in the trend line of order backlog (unfilled orders). Caution: One month is not a trend and we have to see May and June before we know if the trend may be changing.
The real economy is not GDP. GDP is some economists’ idea of what parts of an economy they consider “productive”. Econintersect views the economy from a grass roots level – main street.
Companies hire based on their view of future growth. When order backlog does not grow, do you believe a company is going to be hiring?
YoY growth has been falling in durable goods. Durable goods are 40% of manufacturing, and usually they move in lockstep, so a fall in durable goods likely means 20% of our economy stopped growing. But this portion of the economy only accounts for 9% of total non-farm employment.
What you can take from this graphic is that with the PPI inflation rate being 6.8%, and the YoY improvement in the dollar amount of new orders at 4.0% – real growth is NEGATIVE.
At this point you might be asking what happened after March 2011 numbers were so strong (analysis here), and April’s numbers are so weak. Here is a look at the components growth analyzed YoY if roughly adjusted for inflation:
- overall -3%
- primary metals +14%
- fabricated metals +2%
- machinery +0%
- computers -7%
- appliances -2%
- transportation -5%
- defense -27%
You might have heard pundits claiming these poor April numbers were caused by Japan, autos, or even Boeing. It does not explain machinery, computers or appliances. In Econintersect’s opinion, these poor numbers were caused by rising prices reducing demand.
Philly Fed Business Outlook “Less Good” in May 2011 by Steven Hansen
April 2010 Economic Forecast: Likely at Sub-Cycle Peak by Steven Hansen
Industrial Production Growth Stalls in April 2011 by Steven Hansen
Empire State Manufacturing Survey Less Good in May 2011 by Steven Hansen
Consumers Come to Terms with Frugality by Rick Davis
Business Sales Up Strongly in March 2011 by Steven Hansen
March Retail Sales: A Slight Decline in Real Terms by Doug Short