Implications: Transportation orders – aircraft and autos – were very strong in July. But transportation is the most volatile sector and outside that sector orders were weak, declining the most since the worst of the recession in late 2008 and early 2009.
The primary reason for the decline was a 15% drop in machinery, the largest monthly fall since 1980. These products include turbines, generators, equipment for ventilation, heating, and A/C, as well as machinery for construction and industrial use. Looking back, this is the eighth consecutive first month of the quarter (January/April/July/October) where machinery orders have dropped, with the typical decline being around 9%. Almost all these were followed by increases, so we expect a rebound next month.
In addition, we notice that recent weak data – including the Philly Fed index on manufacturing, higher initial claims for jobless benefits, and today's report – seem to coincide with the end of the homebuyer credit. If this is the cause, we are seeing a natural lull just like after cash for clunkers lapsed last August, likely followed by a return to better growth. The Federal Reserve is not tight and trend productivity growth remains strong, suggesting healthy economic growth. However, recent weaker data suggest concerns about the direction of public policy that will suppress economic growth.
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Posted on Wednesday, August 25, 2010 @ 10:19 AM
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