Tuesday, March 6, 2007

Weak Durable Goods

The first revision of US manufacturing data for January came out today, weaker than the preliminary report: new orders for durable goods were down a sharp -8.7% vs. the previous month (originally estimated at -7.8%). The manufacturing sector is taking it on the chin as the construction/housing bubble is fading fast.

The chart below is the ratio of unfilled orders for durable goods to shipments. In my view, the rapid rise of the ratio explains the sharp drop in new orders: buyers of durable goods already have too many goods on order vs. what they actually need to use or sell, so they are quickly cutting back on new orders. This does not bode well for the manufacturing sector going forward and it also means that overall conditions in the economy are weakening. It is the highest reading for the ratio in 14 years.

1 comment:

  1. This brings the target rate to 3.00%, already one of the lowest levels since Bretton Woods and the inception of the Dollar Hegemony era. And there is more to come: immediately after the FOMC announcement a major Wall Street firm predicted (begged?) that the next cut will be a full 100 bp to 2.00%.
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