Will we see more signs that the economy is slowing in tomorrow's durable goods orders?

06/23/2010 4:25 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Tomorrow’s durable goods numbers for May are a more important indicator of the direction of the economy than today’s disappointing figures on new home sales. (New home sales in May dropped by a record 33% from April to an annual rate of just 300,000.)

In April shipments and orders for the capital goods that companies buy to expand production were disappointingly week. Once you subtracted the effect of strong aircraft sales from Boeing, the numbers seemed to show that investment in equipment and software was slowing. That’s not a good sign for an economy where growth has been concentrated in manufacturing. If companies aren’t adding capital goods, it’s a sign that they’re losing confidence in the recovery. No need to buy equipment if the demand isn’t going to be there.

A drop in durable orders would have an important follow-on echo.

Slower equipment orders would in itself lead to slower growth for the economy as a whole, which would, in turn, lead businesses to cut orders for capital goods even further.

Right now the consensus among economists is calling for a 1.3% increase in durable orders—once you’ve excluded the volatile transportation (Boeing again) sector.

The government releases the numbers at 8:30 a.m. ET.

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