Wednesday, March 25, 2009

Bloomberg: U.S. Durable Goods Orders Unexpectedly Jumped 3.4%

Not "unexpected" if you read EPJ.

Orders for U.S. durable goods rose in February on a rebound in demand for machinery, computers and defense equipment. Outside of defense, this is capital goods stuff.

The 3.4 percent increase was the biggest gain in more than a year and the first in seven months. In addition, recent report show improvements in residential construction and home resales. I always caution about winter construction and home sales, but coupled with the durable goods order and stock market action, we may be on our way, which I have been pointing out will come sooner than most expect.


  1. As a frequent reader of your blog, I feel inclined to ask a question : Doesn't the Austrian Business Cycle Theory predict a decline in the demand for capital goods and an increase in the demand for consumption goods? Or is it me who has it backwards? I suspect that the fact that the US is living on borrowed money may mean that we need to include the rest of the world in order to get a proper view of things.

    Or is this simply the dollar flood starting to trickle through?

  2. Honesty check: Suppose the headline had read: "U.S. Durable Goods Order Unexpectedly Drop 3.4%." Do you promise us you wouldn't have written:

    "Those of you reading EPJ saw this coming. I have been saying for months that Austrian business cycle theory shows that during a recession, consumers switch away from higher-order goods--like houses and consumer durables--and into lower-order goods, like movie tickets and fast food."


  3. @hpx83

    When money supply is contracting you have the move away from capital goods towards consumer goods. Now I believe what we are seeing is the first moves back into capital goods because of the incredible money printing of Bernanke since late September.

  4. Maybe you should clarify that you are talking about an illusionary recovery fueled by inflation, building up to a new bubble, that will burst even more terribly, pulling us all in much deeper.

    Or am I misreading?

  5. @Bob Murphy


    Here's why I don't think I would have responded that way. Part of what I am trying to do here at EPJ is teach how to anticipate trends based on Austrian Business Cycle Theory (ABCT). So first if durable goods had dropped, it is unlikely that Bloomberg would have used the word "unexpected". Most journalists, analysts and economists, as you know, are trend followers--so there is nothing exceptionally disconnected to explain to a trend follower when the data is following trend.

    It is when something breaks the expected trends when I can come in and point out, hey, here is a theory, ABCT, that explains what is going on.

    That's why late in the summer of '08, on my soap box, I was screaming that there were major problems ahead given the summer slowdown in money supply. I think I nailed that!

    Sometime around November when things were bad, I switched to focusing on how immediate consumer goods sales would be strong. And when those things happened, especially after the first of the year, with concert ticket, movie ticket sales etc. soaring, I pointed out how surprised commenters were in the strength in these sectors, but EPJ readers shouldn't have been.

    That's why I wouldn't have said much if durable goods orders declined. To mean it would just mean the tail end of the downturn and not a very good teaching tool (it was "in trend"). On the other hand, I have been sticking my neck way out saying the downturn is going to end much sooner than most expect.Indeed,of late I have been talking about a rocket ship with some of the smaller rockets already taking off. There are very few others who are saying the same. Thus, when the numbers do start to turn, to me, it is a very good teaching tool for me to say, "Hey readers, don't be surprised by this, there's a theory that explains it."

    BTW, I also think I deserve credit for being very cautious about the positive numbers coming out of the real estate sectors. I know plenty of analysts who would have been jumping on the number if they were bullish on the economy. They do seem positive, but I have added that winter real estate numbers can be very difficult to read because of comparative weather factors. To do the job right you would need to, say, check not only how often it snowed or was severely cold this year versus last but did it snow this year or last on a heavy house shopping day such as a weekend, etc.

    I don't know of anyone that is doing that work properly.

  6. @James Rothfeld

    You are correct, though I would call it a "distorted" boom, rather than "illusionary".

    I try to slip something in, roughly every second or third time, about the "Fed money induced distorted boom that will ultimately lead to inflation" when I talk about the boom, but that is a mouthful to put in every post about the boom. Regular readers know what I mean, and those who don't read me regularly should start!

  7. Could this be a temporary uptick because of inventory levels falling over the several months. And now those levels are at a point that new orders are opening up ?

    I cant believe we are seeing recovery so quickly ?

    Do you think we wont see lower-low in stock market going forward ? did we hit a bottom already ? thanks!

  8. @Anonymous

    Don't be a trend follower. Watch what is going on. The Fed has pushed enormous amounts of money into the system since late September. That's what is turning the economy. It has nothing to do with long or short periods.

    Have we hit the bottom in the stock market? Most likely, but you will get killed trying to trade every up and down tick. You have to position for the major trend.