Capital Goods: Another Sign of Weakness

Every time the U.S. economy burps up a slightly better number, the bulls do a little dance and declare an end to the current weakness. The recovery is back, they say. They have been doing this routine for seven years now. But every time, the next number to come out is down and their hopes are squashed. I marvel at their resilience.

The latest example is the February Factory Orders report from the U.S. Census Bureau. Factory Orders for January were originally reported as up 1.6%. The period of manufacturing weakness is over, said the bulls. But today’s release of the February numbers took it all away. January was revised down to a gain of 1.2% while February recorded a drop of 1.7%. Net-net, the decline continues.

Here’s the evidence:

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As you can see, the ship is sinking. There is no recovery here.

What’s worse is the capital goods component of the report. Leaving out defense spending and aircraft orders, the Durable Goods report provides valuable insight into capital spending. Orders for Core Capital Goods fell 2.5 percent in February, pointing to continuing trouble for business investment. Core Capital Goods were down year- over year for the 12th consecutive month. The last positive reading was for January 2015. Month-over-month, shipments fell for 8 straight months.

How can you have an economic recovery without business investment?

One of the narratives you here from the bulls is that we can have a manufacturing recession without a recession in the economy as a whole. Really? Look at this chart and tell me we aren’t heading toward a 2008-style recession all over again.

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Chart Source: