Durable Good Report: Concerns Rise on Weak Data
Following is an analysis from Cliff Waldman, director of economic studies at the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, regarding the December 2015 durable goods report.
“Adding to concerns about a significant slowdown in U.S. economic growth, new orders for long-lasting (durable) goods tumbled by 5.1% in December,” noted Waldman. “Even excluding the volatile transportation component, where small increments in real activity have a big impact on percent changes, new orders fell by a significant 1.2% after a 0.5% contraction in November. For 2015, new orders for durable goods excluding transportation fell by a discouraging 2.6%.
“The data for December were almost uniformly weak,” he added. “The machinery sector saw new orders tumble by 5.6% after a 2.6% decline in November, possibly indicative of a significant deceleration of investment activity in key parts of the manufacturing supply chain. Adding to these concerns, new orders in fabricated metals fell by 0.5%. While primary metals managed an increase of 0.3%, this came on the heels of a 4.4% decline in November. All these data points paint a picture of a struggling U.S. manufacturing sector.
“Of great concern for the economy as a whole, new orders for non-defense capital goods excluding aircraft, a well-accepted proxy for business equipment investment, tumbled by 4.3% in December after a 1.1% decline in November,” Waldman explained. “Equipment spending has been a weak spot in the U.S. economic growth picture for the past 15 years, and especially so after the 2009 recession. Capital investment weakness has been a major factor impeding a sharper rebound from that deep downturn. The December data possibly point to further weakening even from this sluggish trend.
“The disconcerting December data do not reflect the global financial market and commodity market convulsions that almost immediately followed the new year,” he said. “Equity and credit market turmoil, in tandem with persistently falling commodity prices, will likely impede business risk-taking even further, given the omen that it might signal about the business environment.
“The global economic picture has been a distinct negative for U.S. manufacturing performance throughout 2015, producing an elevated dollar and weakness in regions of the globe that matter to U.S. manufacturing profitability,” Waldman concluded. “With the short-term outlook for U.S. economic growth now a question mark, the bumpy ride for the factory sector will likely get even bumpier.”