Weekend Economic Wrap-Up

By January 28, 2007Economy

Business is UpLast Friday, the Commerce Department reported that new orders for durable manufactured goods increased by 3.1 percent in December. Following a 2.2 percent rise in November, it appears that the manufacturing expansion is on the rebound. In the fourth quarter of last year manufacturing output declined at an annual rate of 1.7 percent — the first decline since the second quarter of 2003

The rise in orders in December was led by a robust increase in aircraft orders– which accounted for more than half of the overall monthly increase. This should bode weuioll for exports in 2007, since roughly half of aircaft sales are destined for markets abroad. In addition, there were healthy gains in new orders of computer equipment as well as machinery and fabricated metals.

All told, it looks like business investment spending will continue to be a source of growth in the economy in the new year. However, the pace of growth will likely be slower than the increases that have taken place over the last couple of years. One of the reasons why business investment spending will likely be slower this year is that new emission standards for heavy duty trucks in 2007 have caused businesses to invest significantly in trucks before the new standard goes into effect. Over the past several years, purchases in new trucks have increased at very high rates (25 percent in 2004 and 2005). As a result, investment spending will likely grow at a milder 6 perent this year…compared to 8-9 percent growth over the past several years.

On the positive side, real wages grew at a solid 1.7 percent in 2006– the fastest pace in six years. This signals that even though the downturn in housing has limited the equity-induced growth in consumer spending, solid gains in real wages should bouy consumer spending in the new year.