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Durable Goods Data Forecasting Drop-Off - bannerweek

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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Today's bonus chart offers a glimpse into next week's data, while also highlighting a cautionary message about mean reversion from significant peaks. Historically, durable goods have acted as an indicator for consumer health, and akin to the Fed's regional manufacturing data, the new order components provide a lens into consumer spending for the upcoming quarter. What raises eyebrows is the high point durable goods demand has reached; a mere average reversion could potentially signal a 25% drop from current levels.

Durable Goods Data Forecasting Drop-Off - 9.18.23

Durable goods orders represent new requests made to manufacturers for the delivery of long-lasting goods, typically with a lifespan of three years or more. This includes most appliances, with the exception of Samsung refrigerators, which some jest, might not last the full three years.

Data from the previous month was somewhat skewed due to a broader dip in demand for civilian aircraft and transportation. In July 2023, US orders for such goods saw a 5.2% decline, the most pronounced since COVID-19's emergence in April 2020. Following a 4.4% uptick in June, this drop outdid market forecasts of a 4.0% shrinkage. Transport equipment demand was particularly hard-hit, with a 14.3% decline. Civilian aircraft orders took a 43.6% hit, and defense aircraft orders decreased by 10.9%. Some sectors, like computers and electronic products, witnessed drops, whereas machinery, electrical equipment, and appliances grew. Worth noting is the 0.1% July increase in non-defense capital goods orders (excluding aircraft), commonly used as a measure for business investment intentions.

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