Friday, September 24, 2010

Capex continues very strong


Capital goods orders rose 4.1% in August, and July orders were revised up almost 3%, thus snuffing out any concerns that arose last month about a possible double-dip. Over the past six months orders are up at a very strong 23% annualized pace. This is undeniably good news, since it means that businesses are confident enough in the future to be investing in new plant and equipment, the seedcorn of new jobs and future productivity gains.

Update: I had some trouble getting this chart to show up correctly, but I think it works now. I'm also now more convinced that this series suffers from some faulty seasonal adjustment, since the first month of every quarter is always strong. So I'm going to stick with a 3-mo. moving average which gets rid of that problem. In any event, the 6-mo. annualized growth in capex is over 20% no matter how you measure it.

9 comments:

Jake said...

Capital goods were down 0.9% in August and down 0.8% in July. I believe you may be looking at non-seasonally adjusted figures.

http://tinyurl.com/2vyzmg4

Jake said...

Nevermind... I see that you are referring to non-defense capital goods ex-aircraft at 4.1% vs. down 5.3% in July.

Benjamin said...

Die, recession, die, die, die!

Benjamin said...

Other goods news-

Petrobas (Brazilian oil company) easily raised $70 billion--in other words, huge gobs of capital are on sidelines globally, looking for anything that even sounds good.

Dow up...heading towards 11,000?

As Scott pointed out, although one in nine commercial mortgages is sour, the CMBS market is recovering....

Gold is up? I wonder if it is possible to have property, equity and gold rallies all at once, and low inflation? Heresy?

I say no heresy, reality...gold is not important anymore, with the price set in India on their jewelry market, and China's too.

The Big Q is will the Fed accommodate rapid growth, or snuff it out?

True story: In 1984, when Reagan was president, the Wall Street Journal editorialized that the Fed was being too tight. Inflation was 4 percent then.

Now, we lose our bowels when it pokes its head above 2 percent--and even though it looks like we may be in deflation now.

The Fed may kill this rally...time will tell.

John said...

1) Capital expenditures are strong

2) Commercial mortgage securities prices continue to rise

3) High yield bond prices are above the '08 highs (see HYG)

4) No shortage of money

5) Commodity prices are very strong

6) Few signs of a double dip

7) Deflation fears easing

8) Equity markets improving

9) Capital markets functioning well (bond issuance soaring)

10) Political changes are coming to Washington

There are also many negatives.

1) Some European countries will struggle with their debts.

2) Housing remains a problem

3) US deficits remain uncontrolled

4) Businesses still are reluctant to hire (stubbornly high unemployment)

5) Regulation, particularly in healthcare and finance remain uncertain and confusing to many.

6) Geopolitical problems persist around the world (Iran, Iraq, Korea, Afganistan, etc.)

7) The consumer remains in a deleveraging mood.

8) Banks' lending standards are still fairly tight.

9) The American public is still apprehensive about the future

10) Fiscal austerity abroad and at home (states, municipalities, etc.) may prove to be economic headwinds to growth.

I'm sure many regular posters can come up with more.



Scott has posted that he believes the 'reflation trade' is on. I agree. I continue to think bank stocks are cheap and will benefit from the trends in place along with many other sectors. The vast majority are still bearish. When the vast majority are bullish, the bargains will be gone. Banks are behind the overall market and will play catchup at some point, IMO. This is NOT a 'fast money' short term trade. If you cannot accept some volatility, by all means do not consider it. It is not for everyone. Those who can hold for several quarters should do very well.

Scott Grannis said...

John: excellent summary of the good and the bad news, thanks!

Bill said...

Just had lunch with a hotel developer and manager of a large REIT who thinks the main problem is the fear business leaders have regarding what Obama will do which in turn makes them hold on to their cash and not put it to work on new projects. Hopefully there will be change in November that will give banks/businesses the will to unleash some capital.

Scott Grannis said...

Bill: I am sure this is a widespread sentiment among business owners and investors as well. I personally know owners of a medium-sized business that refuse to consider expanding in today's anti-business climate, and I know investors who are more cautious than they otherwise would be. They may feel better after November.

Ron Dimon said...

Tangential to this discussion:
Good CFO Mag article on CAPEX best practices:
http://businessfoundation.typepad.com/bf_blog/2010/09/capex-performance-secrets.html