Chart of the Day: Fantastic Durables

Today’s chart is from, and provides a clearer insight into the important August durable goods orders data release last night in the US.

Here’s the quote:

New orders for manufactured durable goods in August decreased $0.2 billion or 0.1 percent to $201.8 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.1 percent July increase.

Here’s why you need to look at this in context, just like consumer/retail spending in Australia:

Yes, they have increased from a very low base, but are still down some 37% from 2000 highs.

Here’s the nominal durables plotted against the monthly average S&P500 share price:

So it pays to look at the trend, particularly per capita and adjusted for inflation, not nominal or monthly and extend that analysis into the future. I’m sure there are some who did so at the height of 2007 or 2000 and said things like this:

Recall the claims of dribbling fantasists and lunatics that the US is already in or close to a recession, or whatever, and that the world is ending. I’ve long pointed out that this is not the case, that there is simply no evidence for these claims and that we are not even close (although Europe has the potential obviously).

Well, durable goods orders out last night again back my view. Headline orders were down 0.1 per cent in August after a 4.1 per cent gain the month prior (+14 per cent year-on-year) but core orders were up 1.1 per cent after an upwardly revised 0.2 per cent fall (was -0.9 per cent). Core shipments rose 2.8 per cent after a 0.4 per cent rise, which puts annualised growth near 20 per cent – ie. very strong and certainly not recessionary.

And why is this important? Because as we’ve shown previously, the US equity market leads the Australian equity market. There has been no decoupling and you need to always take a macro, long term view of the real world, even though it may be fantastic.

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  1. not too sure what the point of this post is unless ive missed something.

    DG is going pretty well by the looks of things. If anything the 2nd chart shows its probably a good time to buy US equities?

    “the US equity market leads the Australian equity market” yes but lately we have massively underperformed. on this basis maybe we will play catch up over the next few months?

    the last week or so bears seem to be getting desperate in their attempts to turn non negetive / neutral news into bearish developments when lately their havent really been many, good idea to cover shorts i reckon

    • The point is to point out that a reliance on single monthly data broadcasts should not shape your ENTIRE investment views.

      Further, to point out that it is the long run context that matters with an economy.

      As Rumplestatskin showed with retail spending, it is below trend, and is stagnant on a per capita basis.

      This is different to past “growth”.

      The same is true with the USA – they are WELL below growth, and the data is coming from a low base. The US economy is not robust by any means – the income and wealth per household is down to decade lows…and unemployment is not getting any better.

      I’m no bear GB – or a bull – just saying it how I see it and I’m not inferring to either buy or sell based on a coincident graph of lagging, non see-through data.

      I would be wary of doing so….is that bearish to say that?

      • no, not at all and agree on all points. my last paragraph was more a general obsevation not just in relation to this post.

      • That’s a very concise and good summation of the problem with Adam’s commentary (reliance on monthly numbers without discussing the context).

        Even if the US economy was “robust” — as he would like us to believe — he rarely discusses the fact that rates there are zero. That’s the context I have a problem with. If their economy is so strong, why do they need ZIRP? Thus any “robustness” is an illusion that will be blown away by the next crisis when the Fed resumes raising.

        • Yes its bizarre. Mad Adam bangs on about robust global growth is with the US running ZIRP + QE, Europe is near ZIRP and in the midst of a debt crisis, Japan is running ZIRP, and China has coming to the end of a credit-fueled investment binge.

          If everything was so robust why the hell is the world awash with free money?

          • but the world is awash with free money. so if the economic outlook stabilises at these low levels you will see this free money rush back into risk assets

  2. Adam Carr is sticking with his growth story and passionately derides anyone who takes a different view of the data, which can be found here:

    The picture is mixed, which is what you might expect from monthly data. However, the rate of change clearly shows deceleration. While total shipments and orders are up for the year (7.7% and 10.1%), the recent monthly changes have been modest (Shipments: May/Jun 1.1%; Jun/Jul 2.1%; Jul/Aug -0.2% Orders May/Jun -1.1%; Jun/Jul 4.1%; Jul/Aug -0.1%)

    Momentum generally has been slowing, though shipments and orders of non-defense capital goods is still improving. This component comprises about 35% of the total.

    Prince’s basic point is also very pertinent. Capital goods production remains far below its peak. This is completely consistent with what we know to be the general situation. We are experiencing a very prolonged period in which a significant share of the productive elements of industrial economies cannot be profitably employed. Unemployment, underemployment, excess manufacturing capacity, weak growth, stagnant incomes….this is the reality.

    Perhaps the fixed capital data also reinforce this. In very competitive markets, firms have to invest in new technologies in order to keep their costs down and bring new products to market – to innovate and remain relevant to consumers. And of course firms have the means to invest – they have record amounts of cash available.

    In any case, the wider picture shows deceleration – not yet confirmed contraction, but not the vital growth that Adam Carr would have us think is actually occurring.

    • “In any case, the wider picture shows deceleration – not yet confirmed contraction”

      exactly the point ive been trying to make for the past week. contraction not yet confirmed but it is priced in. if it doesnt come through you will get one hell of a rally.

      • You mean like the “short squeeze” you reckon happened at the end of trade yesterday?

        You need to be very careful about making casual observations that fit your meme.

        Sometimes it pays to pullback and look at the broad trend, as suggested here, and other times diggging into the shorter detail is important

        Not that it matters to 99.9 percent of investors, but last night some people got totally screwed by the price action, which was anything but a “short squeeze”.

        The index steadily fell in the last 30 minutes of trade to 4021, before jacking 18 points higher when there was limited volume in the closing auction. That, my friend, is not how a genuine long buyer or someone being squeezed on the short side would trade.

        It is manipulation for valuation purposes.

        • “You mean like the “short squeeze” you reckon happened at the end of trade yesterday?”

          yes, exactly like that. notice how the market keeps closing well of its lows? today included.

          “Sometimes it pays to pullback and look at the broad trend”

          sometimes it pays to have a look at daily short report. If you have bothered to look at it you would see that 30%-50% of all selling last week was short selling.

          “It is manipulation for valuation purposes.”

          maybe it is, sounds a bit too conspiritorial for me though. more like the massive short positions in the market just shat themsleves on tuesday after a 4% rally and have started to question the wisdon of being short into a market that has already dropped 20% while there is no further evidence of economic deterioration.

          • Ah, so the “long squeeze” in base metals is meaningless, no reflection on economic fundamentals then?

            And the credit markets have got it totally wrong this time, having led equities every step through rolling crises for the past four years?

            How did buying the 20 percent dip in 2008 work out for you? (in the long run)

          • 4D comparing the 20% drop in 08 to the 20% drop in 2011 is amaturish.

            08 was coming off a very, very high base and company balance sheets were highly leveraged so when stocks fell from +20 times earnings into the high teens and they still needed to recapitalise, in hindsight its not suprising PEs continued to fall from the high teens to the low teens. but that was then. this 20% fall is already coming off a low base and company balance sheets are in much better shape and stocks have now been sold down from the mid/ low teens into single digits!

            you want to join the very crowded short trade down here with every other “trader” go for your life. but run tight stops or i reckon you are going to get carted out. im still adding long positions(with tight stops) and we can check back in a month and see how it went.

      • I think the markets have priced in the deceleration and a flat outlook for earnings. But contraction is not yet discounted…not by a long shot. Where would the prices of BHP and Rio be if the iron price was USD 60.00/tonne and not USD 160.00? Copper? Where will earnings be if the prices returned to their pre-bubble levels – say around USD 2,000/ tonne, compared with around USD 7,400 in recent days?

        Consider that gloabal industrial output appears to be topping out well short of its pre-GFC highs. Usually, post-crash, economies bounce back because there is pent up demand. But we have the opposite: pent up over-demand in most product markets, the result of decades of dis-saving.

        • Agreed, and the problem for the bulls is that this very weak rebound occurred following unprecedented stimulus in the US and China.

          As Michale Pettis points out this has done nothing to rebalance national or global growth.

  3. The other thing to note is that total shipments of durable goods by US firms increased from $1.446 trillion in 2010 to $1.558 trillion in 2011 (ytd). So the increase is $112 billion for the year. Nothing to sneeze it, but still small in a $14 trillion economy.

    The increase in non-defense capital goods is from $455 billion to $500 billion – $45 billion. Still nothing to sneeze at, but not enough to energize such a large economy.

  4. So this looks like TARP, QE etc. has had an effect. Wow! I see people are still going to work, doing stuff, buying goods and having holidays but it’s the debt and financials that are causing never ending problems. It never was the working people’s fault that the system got out of regulatory control from about the 90’s.

  5. I thought that Adam Carr article was from pre-GFC or thereabouts – and then I looked at the date.

    He must be constantly going in and out of some parallel universe or something.