This morning the durable goods orders for March came in with a .8% drop which was less than expected, but obviously still negative. Here’s what Bloomberg had to say:
Orders for U.S. Durable Goods Fall Less Than Forecast
By Shobhana Chandra
April 24 (Bloomberg) -- Orders for U.S.-made durable goods fell less than forecast in March, adding to signs the economic slump is easing.
The 0.8 percent decrease reported by the Commerce Department today in Washington compares with an anticipated 1.5 percent drop, according to the median of 68 estimates in a Bloomberg News survey of economists. The news was tempered by revisions to February figures that showed a 2.1 percent gain in orders, smaller than the government previously reported.
Economists project any economic recovery in the second half of the year may be muted as government measures to revive growth will take time to gain traction. General Motors Corp. is planning on idling 13 plants for multiple weeks from May through July, and other companies may keep cutting spending and slash jobs until demand here and abroad shows sustained gains.
“While there’s a little bit of weakness in the report, there are encouraging signs in the details,” said Zach Pandl, an economist at Nomura Securities International in New York, who had forecast durables orders would drop 0.7 percent. “I don’t think an investment-led recovery is very likely at this point, though there are signs the contraction in business spending is slowing.”
The February gain in orders was revised lower from a previously reported 3.5 percent. Estimates for March ranged from a decline of 4.9 percent to a gain of 1 percent.
Excluding transportation equipment, orders fell 0.6 percent, also less than anticipated, after a 2 percent gain in February that was smaller than previously estimated.
Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 1.5 percent after a 4.3 percent gain the prior month that was also smaller than previously estimated. Shipments of those items, used in calculating gross domestic product, dropped 1.7 percent after a 0.1 percent increase in February. The slump may prompt some economists to lower forecasts for first-quarter GDP.
Orders excluding defense equipment decreased 0.6 percent and bookings for military gear dropped 14 percent.
Orders for transportation equipment declined 1.4, led by a 1.7 percent drop among autos. Demand for commercial aircraft, often a volatile category, increased 4.4 percent after plunging 32 percent the prior month.
Orders for computers and machinery decreased following gains in February, while bookings for electrical equipment rose, today’s report showed.
Eaton Corp., a Cleveland-based maker of circuit breakers and fuel pumps, this week posted a first-quarter loss and cut its 2009 profit forecast as sales sagged.
Overseas demand also is sliding. The global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize, according to a forecast by the International Monetary Fund this week. The world economy will shrink 1.3 percent this year, the lender said.
Still, the “sharp decline” in the U.S. economy may be slowing, Federal Reserve Chairman Ben S. Bernanke said this month. President Barack Obama cited signs of progress while warning that 2009 “will continue to be a difficult year.”
General Electric Co., whose businesses span power-plant turbines, jet engines and private-label credit cards, said the outlook is looking less dire.
“While the economy is still difficult, we are starting to firm,” Chief Executive Officer Jeffrey Immelt said in an April 20 interview with company-owned CNBC. “We are starting to see, I think, some signs that businesses are ready to invest again.”
Boy, those are some serious binoculars they are using to look for signs. What sign, exactly, is Immelt seeing? Is it his hunch? I prefer to look at the data… let’s go to the charts, but before I do, let me address a couple of points about the charts. First of all, it is true that these charts are HISTORY indicators showing us what has already happened. Still, my point would be that one should not construe a leveling out or a bounce to be a change of trend. Once markets have fallen a large percent, the math is deceiving. For example, when an indicator such as the Baltic Dry Shipping Index falls 90+%, it can then bounce 50% off the bottom and that only recovers 5% of its previous value. Hardly the stuff to get excited over. It’s simple math, please keep it in mind.
The second thing to keep in mind about these charts is that I can’t always get a common value on the vertical axis as they come from the Fed and they do not present all their data in the same manner, so it’s important to look at that vertical axis. Sometimes you are looking at percent change, sometimes the change in a raw dollar figures. Spend some time with each and don’t move too quickly.
The last thing to keep in mind is that most of these economic charts have experienced parabolic growth. When you look at the raw data, it may appear that a blip is occurring on the top of a chart, but when you look at the rate of change you see a completely different picture. Growth is important, so when you compare year over year figures, seeing the rate of change go negative is telling you about growth or lack thereof.
Durable Goods are a good example of the differences in charts. What are durable goods? Let’s turn to the “Investor’s Dictionary” for help:
“A durable good, or a hard good is an economics term for a good which does not quickly wear out, or more specifically; it yields services or utility over time rather than being completely used up when used once. Most goods are therefore durable goods to a certain degree. Perfectly durable goods never wear out.Now let’s look at the Durable Goods raw data by viewing the total Durable Goods Orders expressed in millions of dollars:
Examples of durable goods include: Cars. Appliances, Business Equipment, Electronic Equipment, Home Furnishings & Fixtures, Housewares & Accessories, Photographic Equipment & Supplies, Recreational Goods, Sporting Goods, Toys & Games”
That’s actually a tremendous drop, but if you look reaaaal closely, you’ll see a little curl up at the end. Is that THE economic corner? I think I’ll wait a while longer to make that determination, how about you? Note that the low on that chart is pretty close to the point that the economy did bottom in 2002.
Now, let’s look at the same data, but we’ll examine it in Year-over-Year (YoY) PERCENT CHANGE:
Boy, it’s falling at a rate of 25% a year?! Yikes. That’s some serious momentum to overcome.
Now let’s look at the INDEX for Industrial Production. This is an index value, but you can see that the rate of decline is much higher than at any point since the chat began in the mid ‘40s:
Here’s the index for Industrial Production of consumer durable goods presented in change of index value, YoY. When presented in this manner, you can see that the Index change is clearly greater than at any time in the past CENTURY:
However, when presented in percentage terms, it is not the greatest Percentage rate of change, but it is since the mid ‘70s:
That’s a good lesson in presenting the data differently. Once something has grown in a parabolic fashion, the descent on the back side of the curve can be precipitous. Which chart above most accurately portrays what’s happening, the greatest index change in history, or one of the largest percentage changes? Well, a large percentage change of a huge number means that very large chunks are falling off production all at once. I would argue that the amount of production decline is, in fact, the largest in the past century.
So, those charts show what’s happening to production and Durable Goods inside of the United States. Now let’s take a look at trade between the U.S. and other parts of the world…
One indirect measurement of trade is the Baltic Dry Shipping Index. This index tracks dry bulk goods, the raw materials of manufacturing. Transportation is generally considered to be a leading indicator, and this one in particular because raw materials take a while to pass through the manufacturing process before they can be sold and counted among the durable goods. The blue line in the chart below is the index value and the other two are moving averages. This index plunged more than 91%, a true parabolic collapse (note the collapse took it back to area before the parabolic move began). It then bounced from the 1,000 area to 1,800, AN 80% MOVE! WOW, THAT’S REALLY SOMETHING, until you consider that you recovered only 6.8% of what you just lost!
But it’s true that this chart very well may have seen its bottom. It’s rare for a 90+% parabolic collapse to collapse again. And let’s face it, expecting another collapse of that magnitude would be unrealistic. Does that mean that the rest of the economy has bottomed? Or does it mean that we have to lose 90% of our manufacturing first?
Okay, now let’s examine Imports and Exports; we’ll start with what’s coming IN first, IMPORTS:
Here’s a chart showing overall imports on a balance of payments basis expressed in percent change YoY:
That’s a very hefty 30+% decline, obviously of greater magnitude than during the last recession.
Now let’s look at Imports from individual countries… here are imports from Japan expressed in millions of dollars:
And here’s the same data expressed in CHANGE YoY in millions:
Here are IMPORTS from our other major trading partners again presented in millions of dollars change YoY:
Now let’s look at EXPORTS, starting with the balance of payments in MILLIONS:
Here’s the export data (non-balance of payments form) presented in YoY change in BILLIONS:
And here are our exports to the same trading partners expressed in millions of dollars change YoY:
As you can see, Industrial Production, Durable Goods, Dry Shipping, and Imports and Exports are experiences collapses on a scale that has not been seen in our “modern” economy.
I’m not saying that this is the end of the world, what I’m saying is that the data doesn’t paint a picture of an economy that’s bottoming. What I see is an economy that is slowing very rapidly and not likely to just turn on a dime and springboard to new and ever greater heights at this point in time.
If you’re buying into this rally, you’re betting that these trends have reversed BEFORE the data says they have. Oh yeah, the markets lead… just like they always do in bear markets. They lead the sheep to the wolves who proceed to fleece. So, take another big toke of those green shoots, Jedi Market Warrior. These trade charts prove that there’s a hole in the world…
Eagles – Hole in the World: