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October 25, 2007
Durable goods orders down, but partly due to decline in military spending
From Bloomberg:
Oct. 25 (Bloomberg) -- Orders for American-made durable goods unexpectedly fell, led by a slump in military equipment that overshadowed increases in business investment.
Demand for cars, planes and other items made to last several years fell 1.7 percent in September, the Commerce Department said today in Washington. At the same time, orders for and sales of computers and machinery, a proxy for capital spending, advanced.
``Manufacturing will have slow-but-steady growth through the end of the year,'' said Adam York, an economist in Charlotte, North Carolina, at Wachovia Corp., which had forecast orders would decline in September. The drop in total orders was ``not quite as weak as the headline suggests.''
Record export demand will keep manufacturing growing, helping prevent the housing-market recession from sinking the broader economy, economists said. The gains in business investment prompted Morgan Stanley and Macroeconomic Advisers LLC, a St. Louis-based research group, to lift their estimates of third-quarter growth.
Macroeconomic Advisers, headed by former Federal Reserve Governor Lawrence Meyer, increased its calculation of growth last month to 3.3 percent, from 3.1 percent. Morgan Stanley adjusted its estimate to 3.5 percent, from 3.1 percent.
The falling dollar is keeping the export market going. The decline in military spending in September could be due to the end of the budget year or just the vagaries of war spending. That investment remains strong is quite impressive. For the rest of 2007 I think we're going to see very uneven performance as certain sectors struggle due to the decline in housing while others respond positively to strong global demand.
King Banaian made a good point along these lines a few days ago.
A local friend reported to me that someone spoke in a meeting of business leaders rather negatively about my writing on the local economy. Basically that I don't know what I'm talking about. Someone responded to him that at least sectorally there are problems stemming from housing. My friend reported that, afterwards, several people came up to him and the guy who spoke back to the critic saying "doesn't he know there are people really hurting out there?"
"Is your firm hurting?" I asked.
"No, we're fine," he replied. "But I know others who are in big trouble."
And so in today's environment, perhaps more than business managers are used to from past experience, sectoral recessions may not lead to overall declines. But when people see a recession in one sector it makes them think that everyone is suffering the same fate... except (perhaps) them.
That said, the size of the decline in housing reported yesterday had me saying, along with Brad DeLong, "GURK!"
Posted by William Polley at October 25, 2007 10:23 AM
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Comments
"Orders for American-made durable goods unexpectedly fell, led by a slump in military equipment that overshadowed increases in business investment."
What the hell? I don't know how the orders link up with the economic reporting but on all evidence we have just asked for deliveries of tens of billions of dollars of MRAPs. The notion that there is some "slump in military equipment" purshases is in context ludicrous. Somebody just asked for an extra $46 billion in defense spending, much of it destined for hardware, methinks someone needs to read the newspapers. If there really has been some slump in investing in military hardware then someone needs to be hung from the nearest tree. I mean I hate this war but I don't like to think we are skimping on the equipment. Where the hell is that $196 billion dollars going if not for equipment? Blackwater's catering bill?
Posted by: Bruce Webb at October 25, 2007 10:35 PM
Sounds more like a timing issue than anything; hence the sentiment that it will bounce back and this is not so much to worry about. The $196 billion hasn't even been appropriated yet (and was only a twinkle in the president's eye during this reporting period). Again, this request is a supplemental for the new fiscal year. They might have been tapped out by September.
Posted by: William Polley at October 26, 2007 1:59 AM
Well I was being a little polemic. It just seemed funny to have someone even be able to place the phrase 'slump in military equipment' given the context of a rapidly ramping up of expenditures including large spending on armored vehicles. You would think any competent reporter would put this in context, clearly this slump was as you say a "timing issue".
This is the kind of thing that drives Dean Baker nuts. Nothing gets put in context. It is kind of like breathlessly reporting that federal income tax receipts shot through the roof in April compared to March. Well yeah that is what happens when April 15th rolls around each year.
They could have avoided my whole rant by simply inserting 'temporary' in front of 'slump'.
Posted by: Bruce Webb at October 26, 2007 9:46 AM
Bruce,
I figured you were being polemic. You're right about the reporting though. I guess this is why we blog.
Posted by: William Polley at October 28, 2007 9:54 PM