Durables: -1.0%, GDP -2.9% (Fugly!)


How awful is this, really?

New orders for manufactured durable goods in May decreased $2.4 billion or 1.0 percent to $238.0 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases, followed a 0.8 percent April increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders increased 0.6 percent.

Transportation equipment, also down following three consecutive monthly increases, led the decrease, $2.3 billion or 3.0 percent to $74.4 billion.

The headline doesn’t look good at all, but then you look beyond defense and it’s not terrible.  The problem was that “weather” was the excuse for the first quarter — what is it now?

I see problems here with communications gear — down 4.5% in shipments and 10.6% for new orders.  Communications is a proxy for hiring in the new orders areas, and while computers were up (three months now, which does make a trend) communications now has been down 2 of the last 3 months.  Is computer gear simply a replacement cycle?  Probably.

Non-defense capital goods were down 0.7% on shipments and -0.5% on new orders.  Ex-aircraft (which is usually quite noisy and large), however, both were positive.  Defense capital goods collapsed on new orders down 31.4% — but for perspective last month they were up 38.2% last month, so don’t take too much from one number.

GDP on the other hand, well, that was bad.

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent.

This is a monstrous negative revision.

A big part of it was non-residential fixed investment.  Rather than invest, companies have issued debt and bought back stock.  But this does nothing for the economy — it simply blows a bubble in the market.  How long before that comes home to roost?  Not long now, I suspect.

If you think companies don’t expect a recession inbound, you’re nuts.  Inventory draw-downs subtracted 1.7% from the GDP number.  Companies don’t build inventories if they don’t think they can sell them — as such this is a forward indicator.

Oh, and current production profits?  They’re down while current taxes were up.  Obamacare anyone?  Worse is that undistributed profits decreased too and this is the second quarter sequentially in which they did.  What does a company pay dividends with?  Undistributed profits.

So for two quarter the markets has risen like a rocket while the fuel for that rise has been exhausted for the last six months.

This will turn out well, I’m sure.

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