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The ‘Real Goods’ On Latest Durable Goods Data

  • Written by Syndicated Publisher No Comments Comments
    December 25, 2013

    Earlier today I posted an update on the December Advance Report on November 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 an alternate historical context in which to evaluate 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 based on the nominal data.

    Here is the first chart, repeated this time ex Transportation, the series usually referred to as “core” durable goods.

    Now we’ll leave Transportation in the series and exclude Defense orders.

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

    Here is the chart that I believe gives the most accurate view of what Consumer 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.

    The Trend in Capital Goods

    Finally, let’s take a big step back in the sales chain and look at the most popular durable goods data series according to the FRED statistics. It is Nondefense Capital Goods Excluding Aircraft (capital goods being goods that are used in the production of goods or services), shown here on a per-capita basis, nominal and real.

     

    The Long-Term Trend

    As these charts illustrate, when we study 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 long-term trend in GDP that I’ve illustrated elsewhere. See especially the most recent update on GDP.

    As we can see from the various metrics above, revisions notwithstanding, the real per-capita demand for durable goods had increased 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. A key driver, or lack thereof, for healthy growth in durable goods orders is growth in household incomes. For a perspective on this point, see my latest update on Median Household Incomes, data through last month, which are down substantially since the end of the Great Recession.

    See also this pair of commentaries focusing on the Sentier Research report on the fourth anniversary of median household incomes since the end of the Great Recession:

    The next durable goods update from the Census Bureau will be released on January 28th.

    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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