How Healthy IS Our Economy? Durable Goods Orders a Worrisome Sign Mike Larson | Thursday, January 28, 2016 at 4:22 pm
Just how healthy IS the U.S. economy?
Some officials and economists, including those at the Federal Reserve, point to relatively healthy job growth as an indicator of strength. That’s why Janet Yellen & Co. chose to stand rather than panic yesterday, and left the door open to future rate hikes despite recent market turmoil.
Others take a completely opposite tack, saying the risk of recession is rising fast. The junk bond market is signaling a greater than 40% chance of a contraction, according to a recent Bloomberg story. Some Wall Street economists peg the risk at a still-elevated, but less-certain 20%.
That’s where today’s durable goods figures come in. They weren’t just weak. They were putrid. Overall orders plunged 5.1% in December, the most in 16 months and far worse than the 0.7% decline predicted by economists. 012816_1857_HowHealthyI1.jpg Orders for durable goods tanked in December.
A key measure of core business spending — non-defense capital goods orders ex-aircraft — tanked 4.3%. Economists were looking for a drop of only 0.2%. The year-over-year decline was the worst going all the way back to 2009, when the economy was last emerging from recession.
The blame lies with a number of factors — the strong dollar, weak overseas demand for U.S. goods, the meltdown in energy spending, soaring inventories that need to be whittled down, and more. But the result is clear: Economic growth estimates are falling fast.
As a matter of fact, the “GDPNow” model put together by the Atlanta Fed is now estimating fourth-quarter growth of only 1%. That’s far below the mid-2% range expected as recently as November. Some economists warned after today’s numbers came out that the U.S. might not have grown at all in late 2015. “Some economists warned that the U.S. might not have grown at all in late 2015.”
Personally, I think this is just the latest worrisome signal in a long list of them. It doesn’t bode well for large manufacturing firms, nor does it suggest corporate executives are confident in future growth. So keep that in mind when deciding whether to ramp up … or dial back … the risk level in your own portfolio. You know which approach I advocate.
Now, it’s your turn to weigh in. Are you worried about the signal from this durable goods report? Or are you encouraged by the recent jobs figures? Do you think we can ride out a manufacturing downturn thanks to strength in services and other sectors of our economy? Or are we tumbling toward recession? Let me hear about it in the comment section below.
Poster Comment:
Durable goods orders is an indicator of the economy. If orders are up, healthy, if down, unhealthy. If people do not have the money, they keep going to the laudromat or put off a new fridge. ;)