Capital goods orders looking better

A month ago, capital goods orders were looking disappointing. Today's release of April figures, which included a 2.5% upward revision to prior numbers and beat expectations (+1.2% vs. +0.5%), has returned this series to the "moderate growth" column. Capex orders are now up 2.6% over the past year, after fully recovering from a disturbing slump last summer.

This is encouraging, to be sure, but we will need to see better numbers than this if the economy is to do better than plod along at the 2% growth rate that has prevailed over the past few years. Businesses still remain quite cautious, and one need look no further than the significant uncertainties surrounding the impending implementation of Obamacare to understand at least in part why.

Nevertheless, the "recovery" in this series provides good support for the view that the economy continues to grow and that a recession is nowhere to be found. That is a critical point, since yields remain extraordinarily low from an historical perspective, and consistent with rather dismal growth expectations. If we could be confident that the economy could post 2% or better growth for the foreseeable future, yields would likely be substantially higher than they are today, since the Fed would almost surely have abandoned its zero interest rate policy stance.