June 2011 Durable Goods Says the Economy Has Stalled

US Census says durable goods in June 2011 contracted 2.1%.  Econintersect’s analysis of the data says this data is indicating the economy has stalled, and the month-over-month contraction may be as high as 4%.

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.

June historically is a month with higher than average durable goods purchases.  It may be difficult to see in the above graphic how large the shortfall was in June 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 June 2011, there is only a 0.4% growth year-over-year using the Producer Price Index (PPI) cost inflation index.

Saying this a different way, the USA is making the same amount of widgets as it did a year ago with a population which has grown 1%.  As reporting is in dollars, backing out inflation lets you see the change in production.

Unfilled orders is a litmus test for growth.  Real growth means the backlog must grow.  Real backlog (inflation adjusted) has been trending down since March 2011.  This does not bode well to 2Q2011 GDP which will be released later this week.

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