Friday, August 24, 2007
Really Strong Durables Report
The remarkable strength of this report is that it shows depth, and shipments are now rising, which is a very encouraging sign.
After two disappointing months, primary metals new orders were up 7.9% and shipments were up 1.5%. Fabricated metals rose as well, though not as much. New orders and shipments for machinery rose, after two months of declines.
The remaining weakness is largely in computers and related, which is natural enough. Those numbers correlate well with opening of new establishments, and retail growth should be slowing which should depress those numbers.
To fully comprehend the exceptional strength of this report in comparison with recent trends, get the entire report at the link above and compare this month's figures to the two prior months and to the 2006/2007 YTD numbers.
I feel more sure than ever, although I cannot prove it, that the B/D models are causing BLS manufacturing related employment to be understated in recent months. The recent reads on the Japanese and German economies have showed some disappointments in growth, so I think this report may represent some gains for the US in heavy production versus those economies. The driving force is probably helping the US to gain share.
The necessary move transition away from a consumer-led economy and back to an economy based on fundamental production may be well underway. This is a strikingly healthy report, and no one can fairly accuse me of relentless, heedless optimism.
Mind you, it would take a few more months to do better than 2006 in that category....
Do you jump from datapoint to the next?
The question now is how bad a recession, and how long a recession, and this is at least an indication that we have some slow positives developing. This is what recessions do. They redirect bad investment into good investment.
We got ourselves here by diverting investment away from fundamental production (energy and products) and into non-sustainable consumption (houses and cars borrowers can't afford). To get out we have to grow production.
What everyone's wondering about this report is whether this can be sustained for very long given the credit situation. If the credit contraction cuts off the flow of capital to industrial companies, we won't.
Also, months on market went up again to 6.1. So it is likely that the new home market is still getting worse. I wrote before about the extreme noise to signal ratio on New Home Sales. That noise to signal ratio gets worse as the numbers get smaller. That's the reason I rarely write about it. Most of the figures on the report don't actually give you any reliable information.
Remember when I wrote about not selling stocks that had a strong underlying business, low debt and a good cash flow? This is why. I think your decision was right for your family's situation, btw. You are a smart woman.
Because they use this procedure that is really based on the economic conditions from the prior year, when economic conditions change sharply the B/D model gets out of whack.
The B/D model gets out of whack on both the positive and negative sides. Generally when conditions improve, it will understate employment for at least six months. When conditions get worse, it will overstate employment for at least six months.
Needless to say, this introduces a lot of uncertainty into matters. There is no question that the B/D model overstated construction jobs, because the preliminary adjustments from last year are coming in and showing that they overstated construction by about 95,000. Thus the liklihood is that this continues, given trends in the industry.
It is just as possible that they are understating manufacturing jobs now. Not hugely, but it would explain some puzzling discrepancies in sales and use tax data in some manufacturing-heavy areas. They are doing better than they should be doing, and it is likely that some missed activity is the cause. Because these counties are areas with signficant manufacturing, the likliest cause is increased manufacturing hiring.
MOM; Durables is a flakey series. I like your railroad and trucking data a lot more.
TSI is really down in the dumps. The latest is June, but TSI freight showed the biggest drop since the beginning of the index. TSI passenger has a three month decline going on, and that is significant.
I feel very comfortable stating that we are in a recession.
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