Some Noteworthy Core Weakness
Amid a backdrop of a slow global economy and an energy slump, the U.S. economy has managed to keep growing on the back of three core areas within the domestic economy: consumer spending, housing, and business investment. In recent days, we saw indications that one of those three areas has been weakening.
Thursday’s durable goods report, released by the U.S Census Bureau, showed that new orders for durable goods were down 2.8 percent in February. They were up 1.8 percent from a year earlier, but that is a weak reading by historical measures, said Bob Hughes, senior research fellow at the American Institute for Economic Research.
A good way to read whether businesses are making investments is a subcomponent of this report called new orders for nondefense capital goods excluding aircraft or sometimes called core capital goods. This measures the value of new orders received by manufacturers in nondefense and non-aircraft capital goods industries. Increased orders tend to lead to the installation of new machinery.
Hughes noted, with some interest, that new orders for core capital goods were down 1.8 percent for the month, and were down 0.1 percent year-over-year.
In the overall durable goods report, the biggest 12-month declines were seen in nondefense aircraft, primary metals, electrical equipment, and computers. The biggest gains were in defense aircraft, “other” durables, and fabricated metals.
The durable goods report is a volatile data set, Hughes said. Still, it is worth taking notice, he said.
“We need the core to be strong. If you see cracks in that, the economy will be more vulnerable,” Hughes said.
