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Is U.S. manufacturing in danger of slowing?
03/24/2011 1:48 pm EST
Durable goods orders fell by 0.9% in February. Economists had expected a 1.8% increase in orders.
After supporting a reading that the economy was recovering through most of 2010, since October 2009 durable goods orders have shown a confusing pattern. In the last two quarters orders have declined in the first month of a quarter before rebounding in the second and third months of the quarter.
That pattern hasn’t held this quarter with the 0.6% drop in February following on the heels of a 3% decline in January.
The two consecutive monthly drops in durable good orders run contrary to an extremely positive increase in the ISM purchasing managers index to 68 in February. That’s the strongest ISM number since January 2004.
I think it’s too early to pick between the two data series—for that we’ll need at least another month or two of data—but I’m worried that the decline in durable goods orders is confirmed by a drop in non-defense capital goods (excluding aircraft). Orders for this equipment, used to expand production, fell by 1.3% in February after declining by 6% in January.
A drop in orders for capital goods would indicate that manufacturers are losing faith in the speed of the recovery. If they don’t see evidence of expanding demand, they’re less likely to order new equipment.
My best guess on how to interpret the contradictory messages in this data is that February represents a pause as manufacturers take a wait and see attitude on whether or not—and by how much—rising energy prices cut into consumer demand.
It’s too early for manufacturers to say that demand will slump with higher oil prices, but it is reasonable to imagine them getting cautious.
Of course, it’s exactly growth in caution by consumers and producers that leads to slowing economic growth.
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