New orders for durable goods suffered a hefty fall last month, dropping 3.6% in April on a seasonally adjusted basis, the Census Bureau reports. That’s the biggest monthly slide since last October’s 3.7% retreat. This isn’t news we want to hear right now, given renewed worries of an economic slowdown. What’s more, there’s no statistical hiding spot: April’s drop in new orders was broad based. But the trend is still positive on an annual basis, and that counts for something. Indeed, given the unusually high rate of recent gains on a rolling 12-month basis for new orders was destined to slow and so it’s not terribly surprising to see a bit of red ink.
For the year through last month, new orders rose 5.3%, despite last month’s drop. As the chart below reminds, that’s still a strong pace. It’s probably headed lower without a surge in economic activity in the months ahead. That seems unlikely, which implies that we should expect additional downshifts in the new orders.
Even if the pace softens further in the months ahead, there’s still a margin of safety for thinking positive vis-a-vis the 12-month trend. Anything north of 2% to 3% a year suggests that the risk of a new recession is still minimal. Nonetheless, there’ll be a fine line between returning to trend and a new warning signals that a bigger problem is brewing, and it won’t necessarily be obvious where we stand in real time.
“It’s another modestly disappointing data point in a long series of slightly disappointing data points that we’ve gotten in the last month,” Fred Dickson, chief market strategist at D.A. Davidson & Co., tells Reuters. “[It’s] not indicative of an economic downturn, just kind of paints a picture that the economy is in a momentary lull.”
That’s a fair summary based on the information currently available. “Manufacturing is likely to moderate from the explosive pace of growth in the past few months,” opines Stephen Stanley, chief economist at Pierpont Securities, via Bloomberg. “Consumer demand and investment demand are both doing well right now.”
But there are several key economic reports scheduled for the remainder of the week, and so the possibility of an attitude adjustment can’t be dismissed. Tomorrow we learn if last week’s initial jobless claims behaved or not. The consensus forecast calls for slight improvement after the recent surge suggested something darker was lurking. The second GDP estimate for the first quarter arrives tomorrow as well, although expectations are roughly in line the initial weak 1.8% estimate. Not great, but that’s old news that’s already priced into the market. In addition, Friday brings word of personal income and spending for April, and economists are predicting a fairly strong rise, according to Briefing.com.
The chance for a relaxing holiday (Memorial Day) weekend in the U.S. may be in the cards after all, although it’s going to take some pretty encouraging numbers in the days ahead to reverse the anxiety unleashed by today’s durable goods report.