Thursday, February 24, 2011

Capital spending remains strong

January capital goods orders fell by a much-bigger-than-expected 6.9%, but you can't take that number at face value. December orders were revised upwards by almost 3%, and the first month of every calendar quarter has a strong tendency to show declines that are reversed in subsequent months. Using a 3-mo. moving average solves the seasonal problem, and that's what the chart shows: orders continue to increase. In fact, on a year-over-year basis (which avoids seasonal problems altogether), orders are up 14%, and that's a very strong showing. Much stronger, for example, than what we saw coming out of the 2001 recession. Strong investment spending reflects growing business confidence, and it also sows the seeds of future productivity gains.


Benjamin Cole said...

Looks like a robust recovery here--and American companies have plenty of cash to spend on more capital improvements, which should lead to more increases in output per worker.

The only potholes I see are these events we have nothing to do with--a Libya, some European debt problems, hurricanes etc.

Yes, long-term I would like less debt in the USA, but I think mild inflation will accomplish the same thing.

Bill said...


From your perspective, is the headline number, total change in all Durable Goods, irrelevant, good or bad?

Scott Grannis said...

I have always focused on the Capital Goods portion of Durable Goods. Durables include aircraft and defense-related spending, whereas capital goods does not. Aircraft orders are notoriously volatile, and defense orders are not necessarily indicative of private sector investment.

But even Durable Goods orders are up 7% in the past year.