From the WSJ:
Companies are stepping up spending on equipment as the recovery that first took hold in manufacturing broadens to other areas of the economy.
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A Commerce Department report Thursday showed that orders for durable goods—items expected to last at least three years—fell 1.1% in May from April, a drop that was driven by a decline in often-choppy aircraft orders. But a key measure that economists watch to gauge capital-spending plans—nondefense capital-equipment orders excluding aircraft—rose 2.1% and was 18.4% above its year-earlier level.
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A Commerce Department report Thursday showed that orders for durable goods—items expected to last at least three years—fell 1.1% in May from April, a drop that was driven by a decline in often-choppy aircraft orders. But a key measure that economists watch to gauge capital-spending plans—nondefense capital-equipment orders excluding aircraft—rose 2.1% and was 18.4% above its year-earlier level.
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This has been an untalked about part of the recovery -- how inventory restocking and foreign demand is helping US manufacturing to grow which in turn leads to more investment.
However, here is the basic chain of events:
The ISM manufacturing index is at strong levels. As a result,
durable goods orders have turned around. In addition, the increase productivity
Firms have increased their investment in equipment and software.
In addition, this is not just a story about manufacturing:
increased non-manufacturing orders are helping as well.
4 comments:
Looks like Q2 GDP will come in pretty decent thanks to these business purchases and especially decent compared to Q1's final read.
Even though nominal GDP today was revised down 9 billion...NIPA corporate profits after tax were revised up 32 billion....
Business investment spending was pretty much the only good economic report we've had in some time. Unemployment claims are still stuck around 455,000. Seems like every week the number of claims fall, but it never does because the govt. always revises the previous weekly claims upward.
A case now can be made that a double-dip recession started last month. The big question is whether the NBER is even going to declare whether the recession that started in Dec. of 2007 even ended. That would be one way of avoiding a double dip recession. Just declare that we are still in one long recession.
The increases in durable goods orders in recent months are mostly due to the US fiscal stimulus and the Chinese real estate bubble, both which are fading now. Once stimulus wears off (within months), the effects of the stronger dollar vs the euro come into play, weak growth in the eurozone sets in, and the unsustainable Chinese real estate boom begins to wilt, then durable goods orders should see new lows. This should happen by early next year, unless the Federal reserve commences money printing again and the US govt pumps in more stimulus into this unsustainable growth cycle.
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