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Update: Core CAPEX Recession Indicator

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    October 28, 2012

    Earlier this month Business Insider posted a commentary with the attention-grabbing headline:DAVID ROSENBERG: Here’s Your Big Red Flag That We Could Be Heading For Recession. I generally find Rosenberg’s chronically bearish commentaries of interest and in this case by the fact that he’s reported to view CAPEX as a recession indicator.

    This morning the Census Bureau released the October Durable Goods report for data through September. The CAPEX referenced by Rosenberg is the Manufacturers’ New Orders: Nondefense Capital Goods Excluding Aircraft data series, which is conveniently available in the FRED database. The data goes back to February 1992, so we only have two recessions during this timeframe to evaluate CAPEX as a recession indicator. Here is a look at the monthly data.



    Here is a year-over-year percent change of the series.



    And, finally, the chart below is the YoY of a 3-month moving average of the complete series. This is the data manipulation used by Rosenberg to support his recession alert.



    Indeed, the CAPEX 3-month MA has been trending down since March of this year. In fact, the month-over-month data has been trending downward since its interim high on December 2011.

    Ultimately my sense is that this data series manipulation (YoY of the 3-month MA) has an insufficient track record to be considered a definitive recession indicator. N=2 is not enough to make reliable recession probability forecasts. But CAPEX is definitely a troubling indicator that I’ll continue to watch for the next several months.

    Here are my routine monthly Durable Goods updates:

    The next Durable Goods update, including CAPEX, is scheduled for November 27th.


    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.