Here’s why the durable goods number is soaring

Aug 26, 2014
HTML EMBED:
COPY

Here’s why the durable goods number is soaring

Aug 26, 2014
HTML EMBED:
COPY

Orders for durable goods — things like washing machines or drills or escalator parts — surged 22.6 percent in July. That number got a great response from Wall Street guys today.

“A sharp increase.” – Wells Fargo Advisors’ chief macro strategist Gary Thayer

“It was stunning.” – Ben Herzon, senior economist with Macroeconomic Advisors

“Massive.” – Wrightson ICAP’s chief economist Lou Crandal

But then they said this:

“Modest.” – Thayer

“Don’t have much bearing.” – Herzon

“Pretty much irrelevant.” – Crandal

So what gives?

It turns out, most of the surge in durable goods is due to one company, Boeing. It got a bunch of new orders for expensive airplanes. Airplane orders take a long time to fill and could conceivably be canceled, so while the plane orders is great for the long term, it’s not such good news for right now.

“A lot of that won’t translate into immediate production increase so you really need to factor that out,” Thayer says.

So forget airplanes — forget washing machines, even. In fact, you can forget most of the stuff in the durable goods report, Crandal says.

“Most of the durable goods report is of very little relevance because there are better measures of almost everything that forms the various components of this report,” he says.

Surveys of auto sales, for example, are more accurate and early than the auto sales data in the durables report — in particular, the advance report which is subject to significant revision.

“The one thing that’s really crucial is the performance of capital goods orders,” says Crandal. Specifically, non-defense durable capital goods.

That’s the equipment businesses buy in order to make things businesses sell.

“To put equipment in place, businesses have to be confident that they can sell the stuff that equipment is going to produce,” Herzon says.

Those numbers are up 11 percent over last year with some revisions that make June look really good too (from 1.4 percent up to 5.4 percent). It means businesses are more confident. Consumers seem to be, too.

“There’s been a sea change in the way that people respond to questions about whether jobs are plentiful or hard to get,” says Crandal.

In four months, the number of people who think jobs are plentiful jumped from 13 percent to 18 percent — more than that number rose in the past two years combined.

“I don’t think it’s a sign the economy’s about to start booming, however it is reassuring that we may have some momentum going into next year,” says Crandal.

A lot of businesses and consumers seem to think so too.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.