Durable-Goods Orders Drop Off Cliff

The economy might never look better for those involved in crony, rent-seeking pursuits.

For the rest of us, continued belt tightening is the order of the day.

With wages remaining stagnant, we now get to swallow a heaping of further economic gruel as large-ticket durable goods orders are reported to have taken what might only be compared to a swan dive off a long cliff.

How long a dive and what is the degree of difficulty connected with this report? “Only” a 7.3 percent decline . . . OUCH. Brace yourself for a large splash and likely bodily injury upon entrance.

Let’s review the dive a little closer as the WSJ covers the scene:

Orders for long-lasting manufactured goods fell sharply in July as demand for aircraft fell and business spending was weak.

Total orders for durable goods—big-ticket items built to last three years or more—dropped 7.3% to a seasonally adjusted $226.6 billion in July from the prior month, the Commerce Department said Monday. Economists had forecast a 4% drop.

Businesses and consumers typically make such purchases when they are confident about the economy, and the decline suggests potential signs of weakness as the economy struggles to grow.

The decline came largely from the civilian-aircraft category, which fell 52.3% for the month. Boeing Co., for example, reported only 90 plane orders in July, compared with 287 in June. Airplane orders reflect a small group of manufacturers and take several years to deliver, but their high prices can have an outsized effect on overall orders.

Outside of the volatile transportation category, durable goods were still relatively weak for the month and fell 0.6%. But yearly figures, which smooth out the data, show overall durable goods orders were up 3.3% and orders excluding transportation were up 2.5%.

A key gauge of business spending—nondefense capital goods orders, excluding aircraft—fell 3.3%, after rising in prior five months.

Shipments of durable goods in July, which largely track orders from previous months, fell 0.3%. Manufacturers have been struggling this summer after a slowdown earlier in the spring. The Federal Reserve said earlier this month that industrial production stalled in June, with manufacturing—the biggest and most closely watched component—dropping 0.1%.

In one bright spot, orders for motor vehicles and parts rose 0.5%. Consumers have been buying new cars at a strong pace in recent months after delaying decisions about some big-ticket purchases during and after the recession. Sales in July were up 14% and J.D. Power projects growth of 12% this month.

Americans, facing stubbornly high unemployment, may have also pulled back their spending of high-priced goods. Sears Holdings Corp. said last week overall sales were down 6.3% for the three months ended Aug. 3, pushed by lower sales in home appliances.

Defense spending was also weaker, falling 21.7% after rising for three consecutive months.

What recovery?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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