Sadly Real Durable Goods Contracted Year-over-Year in September 2011

Following last month’s strong growth spurt, September 2011 inflation adjusted durable goods new orders contracted 9.8% month-over-month and 2.7% year-over-year.

The headline seasonal adjustment methodology says current dollar durable goods new orders declined 0.8%. Econintersect does not believe the US Census seasonally adjusted analysis is properly conveying the movements of the raw data.

The drag this month on new orders were transports – autos and aircraft.  Without transports, inflation adjusted durable goods would have grown year-over-year 0.5%.  Defense spending was a positive influence on new orders.

The Durable Goods category 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.

Historically September is a month with higher than average durable goods sales (new orders).  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 unadjusted data and the inflation data (red).  Durable goods is reported in current dollars, and cost inflation has been increasing, producing a bigger spacing between the blue and red lines recently.  As evident, the inflation adjusted new orders is contracting.  The data has had a large up month, and now a large down month – durable goods is noisy.  As far as a trend is concerned – it is likely flat.

However, there is one more test that can be done on the data to confirm the validity of Econintersect’s conclusion that durable goods new orders contracted in September.

Here inflation adjusted unfilled orders declined slightly – although unadjusted unfilled orders increased.   This is a sign that new orders were less than the rate of manufacture.  Overall it tends to validate that new orders were weak this month.

To illustrate how durable goods new orders and backlog fits into the economic system, the Fred graph below was produced based on August data, but clearly turning points preceding a recession.  Also, this data set is imperfect as it also includes a false turning point in the 1990’s.

Econintersect sees this durable goods release as an economic “bad hair” day.  But it does add fuel to the fire of those who believe the economy is about to enter a recession.

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