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US Economic Growth Is Slowing...Or Is It?
03/24/2011 4:31 pm EST
Which data should you believe when looking at the direction of US economic growth?
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 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.
But that pattern hasn’t held this quarter—the 0.6% drop in February followed on the heels of a 3% decline in January.
The two consecutive monthly drops in durable-goods 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 numbers—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—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 get cautious.
Of course, caution by consumers and producers is exactly what leads to slowing economic growth.
Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX ), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of January, see the fund’s portfolio here.
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