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Demand for durable goods down, but don’t get scared yet

Nancy Marshall-Genzer Jul 28, 2010
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Demand for durable goods down, but don’t get scared yet

Nancy Marshall-Genzer Jul 28, 2010
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TEXT OF STORY

Kai Ryssdal: The Commerce Department reported today that orders for durable goods were down a percent last month. That’s cars and airplanes and washing machines — big, expensive stuff. And the drop does sound bad, but the numbers have a more complicated story to tell.

Marketplace’s Nancy Marshall Genzer has more.


Nancy Marshall Genzer: Durable goods are products meant to last at least three years. And any way you slice it, the story seems to be that demand for them is losing steam, whether we’re talking about computers, machinery or electronics.

Joshua Shapiro is chief U.S. economist with MFR in New York.

Joshua Shapiro: The underlying message, I think, is that we’ve seen momentum begin to slow down.

You see that in another number released today. Manufacturer’s inventories — the stuff they’ve made and not sold yet — were up almost a percent. What happened? Factories ramped up to meet increased demand after the recession. Now, things have leveled off. Manufacturers have a little extra inventory — but that’s OK. In fact, they might need more.

Kevin Flanagan is a Morgan Stanley economist. He puts this part of the manufacturing story in “Goldilocks” terms: Manufacturers have to get the porridge just right.

Kevin Flanagan: If you were to look at demand being steady going forward, then they would probably be too cold.

In other words, manufacturers would have to turn up the heat on production. Michelle Girard is senior economist at Royal Bank of Scotland. She says, look at three or four months of manufacturing numbers, and you’ll get a story with a pretty happy ending.

Michelle Girard: I don’t see any worrisome trends over the last couple of months. I mean, maybe some moderation, but not a pull-back in demand.

So, the economists I talked to are somewhat optimistic about this manufacturing story. Right now, it doesn’t look like Goldilocks has to worry about a bear market in durable goods.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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