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The ‘Real’ Durable Goods Numbers Sobering…

  • Written by Syndicated Publisher No Comments Comments
    July 27, 2012

    Earlier this morning I posted an update on the July Advance Report on June Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation.

    Let’s now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau’s monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today’s dollar value. This gives us the “real” durable goods orders per capita. The snapshots below offer a quite sobering alternative to the standard reports on the nominal monthly data.

    Economists frequently study this indicator excluding Transportation or Defense or both. Just how big are these two subcomponents? Here is a stacked area chart to illustrate the relative sizes over time.

    Here is the first chart, repeated this time ex Transportation.

    Now we’ll exclude Defense orders.

    And now we’ll exclude both Transportation and Defense for a better look at “core” durable goods orders.

    Finally, here is the chart that I believe gives the most accurate view of what Durable Goods Orders is telling us about the long-term economic trend. The three-month moving average of the real (inflation-adjusted) core series (ex transportation and defense) per capita helps us filter out the noise of volatility to see the big picture.

    As these charts illustrate, when we study core durable goods orders in the larger context of population growth and also adjust for inflation, the data becomes a coincident macro-indicator of a major shift in demand within the U.S. economy. It correlates with a decline in real household incomes, as illustrated in my analysis of the most recent Census Bureau household income data:

    The secular trend in durable goods orders also helps us understand the trend of declining GDP that I’ve illustrated elsewhere. See especially the most recent update on GDP.

    As we can see from the various metrics above, the real per-capita demand for durable goods has increased substantially since the trough at the end of the last recession. But orders remain far below their respective peaks near the turn of the century and earlier.

    Tomorrow we get the Advance Estimate of Q2 GDP. What percent of the nominal GDP dollar amount is contributed by Durable Goods? Here’s the answer — less than 1.5 percent.

    Remember, if you have a question or comment, send it to editor@advisorperspectives.com.

    © Copyright 2012, Advisor Perspectives, Inc. All rights reserved.

     

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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