Durable goods orders up and big
Posted by Jason Apollo Voss on Jun 24, 2009 in Blog | 2 commentsGood morning, good morning! I hope that this blog post finds each of you doing well.
May’s orders for durable goods was up 1.8%. What the heck is a durable good? These are the big purchases that consumers make like computers and washing machines. Do you remember back on the blog I said that I thought that technology companies would lead the way out of the recession and that manufacturers were likely to lag the rest of the economy? Well orders for durable goods is a harbinger that manufacturing is reviving itself as well. That “up 1.8%” is the third month of the last 4 that the number has been up. What’s more, economists had projected a decline of 0.8%, meaning that the 1.8% up is a big, big outperform.
BUT WAIT, THERE’S MORE!
The following obscure statistic has meaning, too. Orders for non-defense capital goods excluding aircraft rose by 4.8%, the biggest jump in 5 years. Capital goods are the machines purchased by businesses in order to manufacture their products. “Non-defense” means stuff for the private sector. Aircraft are excluded because they are super expensive and are often ordered in bunches by airlines. So a single aircraft order can distort the entire statistic. Does this make sense? The most important thing is that companies are buying again.
The one not so good piece of data is that credit remains difficult to attain for individuals and businesses alike. Eventually banks are going to have to invest their burgeoning deposits in lending, but it wasn’t in the month of May apparently. This will be an important number to watch going forward.
I hope that each of you is smiling!
Jason
Good evening Jason, how are you?
In the spirit of my last question, I have another article for you to comment on.
http://www.bloomberg.com/apps/news?pid=20601110&sid=aFcXAGUYZSVw
Seems like a decent idea. Also interesting that it's a heavy hitter making the suggestion. Perhaps a dollar limit on the proposed tax (so it only affects large orders) would be appropriate?
Thank you for the excellent diagnosis of the republican regulatory overhaul plan! I too was in the northeast the past several weeks, and have been away from your blog. Now I get to catch up! Good news with the publishers, I hope?
Hey Nate, I agree with Lou's intention of reducing the culture of greed on Wall Street and a reduction in the obsession about short-term results. However, I don't think this is the way to correct this problem. The reason I say that is that there are times when all of us become short-term traders. Do you remember my post, which I believe you commented on, when I gave the model of market behavior? Markets crash when long-term investors become short-term investors. There are times as an investor when things ARE genuinely bad and you want to get out. The other reason that I disagree with Lou is that if an 80% capital gains tax exists on short-term trades, and we are in a recessionary environment such as we are now, what is the incentive for liquidity to re-enter the markets? After the financial markets have collapsed, then before people will absolutely recommit to the markets they will need very strong proof that things have recovered. I think that's a net-bad for the financial markets and for the economy. The fact is that we need people, especially in a down-market, that are willing to risk their capital in an investment, even if it is only for a week or a month. I do agree with Lou that there should be no long-term capital gains tax. Anything held longer than 5-years should not be taxed. That would serve as a powerful inducement to invest for a longer period of time and also would help to eliminate the marginal day trader. That is, the day trader who really is a long-term sort, but has a hard time getting 5-years worth of conviction is a business.
Great question.
McGraw-Hill turned down my book, but gave me some advice for changing my material. It sounds as if these changes are made then a book deal might be in the offing. Thanks for asking.