Headline durable goods declined -1.3% sequentially, the second consecutive month of negative growth, and decelerated on both 1Y and 2Y basis.
Sure, the drop in commercial aircraft orders and communication equipment (both volatile components) led the softness but, overall, it just wasn’t a strong report. Almost every sub-aggregate reported negative MoM growth and most decelerated on a year-over-year and 2Y ave basis as well.
Durable goods ex-Defense & Transports were down -0.5% sequentially, Core Capital Goods dropped the most in 8 months and Durables ex-Defense & Aircraft – i.e. the stuff the average household purchases – was down for a second consecutive month - the 1st such instance since the polar vortex/weather distortion peak in Jan/Feb.
It’s worth noting also that the rise in consumer credit has followed the slope of durable goods consumption in recent quarters as household spending on durable goods has helped buttress soft’ish growth in services/non-durables consumption. A retreat in durables spending would weigh on both credit growth and aggregate PCE heading into 4Q.
So, while the labor and income data has held steady, the spending and mfg data is slowing from a second derivative perspective as we head into 4Q.
If you agree with our view that it's the rate of change, or slope of the line, that matters in front-running market and economic inflections then the traversing from “Good” to “Okay” in the domestic macroeconomy as the preponderance of the ROW transitions from “Okay” to “Poor” as growth slows and disinflation predominates is not your cue to buy the top end of a late-cycle rally with leverage.
A lot of myopic speculation coming down the pike with the Trick-or-Treat double header of FOMC & 3Q GDP on deck to close out the week……
"Learn to separate the majors from the minors. A lot of people don't do well because they major in minor things."
Christian B. Drake