Monday, January 28, 2013
Modest improvement in capital goods orders
December capital goods orders exceeded expectations (+0.2% vs. -0.2%), and November orders were revised up a bit (+3.0% vs. +2.7%). This proxy for business investment has now reversed over half of the decline that occurred from December through July, and thus the threat of an investment-led slump in the economy has receded significantly. Businesses are not going on strike, but they remain cautious. As of the third quarter last year, after-tax corporate profits were up 30% from their pre-recession peak, yet capital goods orders are still 9% below their pre-recession peak. Business' lack of confidence in the future—as manifested in a reluctance to invest in line with gains in profits—is one of the main factors restraining the growth of the economy.
Shipments of capital goods have risen for the past three months, and so this component of GDP will be positive in the fourth quarter, after subtracting in the third quarter. It's not a whole lot to be excited about, but it is a positive change on the margin, and when a number of those add up, the economic outlook continues to improve, albeit gradually.
Durable goods orders, meanwhile, reached a new post-recession high in December, and are only 5% shy of their pre-recession peak.