Wednesday, September 26, 2007
OUCH! Durable Goods
Nondefense new orders for capital goods in August decreased $10.2 billion or 12.6 percent to $70.9 billion.That's ugly. Inventories did decrease a bit, which generally would be a positive sign for future new orders. In this case, one wonders.
I feel cheated. One good report, and then this? These figures are so volatile month to month that one needs to keep one's head and look at trends.
The full release is available at the above link. On the left, choose the format you like and download the advance. This is a link to the pdf version. If you look at YTDs (2007 YTD/2006 YTD), shipments (Table 1) are running ahead of last year, but inventory (Table 2) is up too, and it's up even more. Note that these are currency measures, so cost increases and decreases do show up in this report and can mask volume changes.
Non-defense aircraft and parts have been the star of this report for quite a while, but a new trend seems to be emerging. Inventory is up 25% YoY YTD, and:
Shipments:We'll see. The recent economic news has tended toward the depressing side, whether it's housing stats, retail sales or confidence/expectation surveys. The Euro news isn't really much better.
The trend does tell the story in a more impartial way, but gee this is a big change.
Against the problems in residential RE, Problems starting in CRE(the cost of loans depends on long term rates which are going up), Retail Sales and things are looking ugly.
I really am sorry, btw.
That's why I read the detailed reports. They had started to look better, but now they seem to have turned around again. The preliminary has more information by category so I'll be waiting for it.
A build up of inventory shows as a positive for GDP, though. Snort. Another reason why GDP numbers need to be taken with a grain of salt and a lot of perspective.
It's going to be wierd. Boatloads of plasmas off the shore of Long Beach/Los Angeles with no place to offload because the port is clogged with empty sea containers and the transportation pipeline from retail backrooms to railroad in transit is full. Watch the BLS ton-miles.
However, for holidays, the stuff has to be ordered months in advance. Sooo the stuff is either already here or on its way. I do not know if it can be canceled or not. Likely not.
So what happens if demand goes to the bottom? Gonna be a long tail of stuff coming in and little going out. I guess it will be just stacked in place. Though there are precedents for dropping it off the side of the ship.
Another way to look at it is that retail overall is way oversupplied, which diminishes sales at individual stores, but this doesn't account for the big drawdown in stocks for chains like WalMart.
If you are concerned about the 4 million surplus of residential housing then you are missing the elephant in the corner.