Companies order fewer big ticket items in June
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Steve Chiotakis: Orders for durable goods — big ticket items such as aircraft or computer servers, fell more than two percent in June. Economists had expected a small increase. Now durable goods are items that are supposed to last a long time — at least three years to be exact. So, it stands to reason if you’re worried about the long-term prospects for the economy, you probably won’t be buying any of those items.
Richard DeKaser is an economist with the Parthenon Group, he’s with us live from Boston as he is every Wednesday morning. Good morning, Richard.
Richard DeKaser : Good morning.
Chiotakis: So the drop in durable goods was for June, which was smack in the middle of this debt ceiling debate. Is this the first hard data that we have real unease by business about a possible default?
DeKaser : I don’t doubt that there is a lot of uncertainty out there. I don’t doubt that it’s weighing on business behavior including spending, especially on capital goods such as these we’re talking about. But, I wouldn’t attribute the entire decline to that. Generally, these are the type of items that do really well when the economy is doing well, and very badly when the economy’s doing mediocre, so we’ve had a slow economy for a variety of reasons to do with the events in Japan, North Africa, the Middle East, Europe, and those surely are accounting for the bulk of the decline. i also think it’s too early. In June, we weren’t really on the precipice as we are now. Really it’s to the extent that confidence is weighing on these actions, we’re likely to see that in July, rather than June.
Chiotakis: We keep hearing the word default. The U.S. is going to default. What exactly characterizes a default, Richard?
DeKaser : Well, technically, it is the failure to make timely payments. On debt, whether interest or principal. That would definitely happen in the event that we do not pass this debt ceiling legislation. Some have suggested that term could apply to other things. Like failure to make social security changes. I’m not sure that definition holds up — it might become in the end irrelevant and just semantics, because regardless a debt downgrade whether in the context of a default or otherwise, would be very, very bad.
Chiotakis: Richard DeKaser in Boston. Richard, thank you.
Richard DeKaser : My pleasure.
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