Durable Goods Report Adds to Signs of Slowing Recovery

By July 28, 2010Economy, Trade

Today’s report on June durable goods orders adds more fuel to the fire of concern that the recovery is decelerating. For the first time in nearly a year and a half, new orders for durable manufactured goods fell for a second consecutive month in June. While May’s decline was mainly caused by a large decline in nondefense aircraft orders, the June decline was joined by drops in new orders for both computer and electronic products as well as machinery. These declines in new durable goods orders are a worrisome sign that, after the recent growth due in part to fiscal stimulus measures as well as inventory restocking, the economy is now on a decelerating path, which is not a good place to be in the early stages of a recovery.

Based on today’s report, this slowdown will be felt more in the third quarter than the second. Due to stronger gains in prior months, shipments of nondefense capital goods increased at an annual rate of 12.5 percent in the second quarter. This is solid evidence that some combination of exports and domestic business investment made a positive contribution to second quarter GDP growth, which will be released on Friday. Given that machinery, one of the most export-intensive manufacturing industries, posted the strongest shipment gain in the second quarter, I believe that exports are currently a more-prominent driver of the manufacturing recovery than domestic business investment. Uncertainty about the underlying strength of the domestic recovery is likely restraining plans to increase capital investment.

Join the discussion One Comment

Leave a Reply