Drop in Demand for Capital Goods Piles on to Manufacturing Recession

Source: Economics Group of Wells Fargo Bank, N.A.Summary Look past the aircraft boost in today’s durable goods report to see the pivot from slowing capital goods orders to outright declines. Taken in tandem with the contraction in equipment spending in today’s GDP report, this is further evidence that the manufacturing recession is underway. Headfake From Headline Ignore the 5.6% headline jump in durable goods orders in December; aircraft orders explain much of the “strength” (chart). More significant to the outlook for capital spending is the fact that core capital goods orders have pivoted from merely losing momentum to outright declines. The 0.2% drop in core capital goods comes on the heels of a downward revision that washed out the previously reported 0.1% increase in November and replaces it with a goose-egg. That means this key leading indicator for capex spending has posted just one monthly increase since August. The actual level of core capital goods orders is down 0.7% since August, and the growth trend is clear even after adjusting for inflation (chart). READ FULL ARTICLE>>