Today’s durable goods report is consistent with our belief that GDP growth in 2H10 will be significantly below consensus and that MACRO reporting risk continues to be to the downside of expectations.
To that end, the June US durable goods order is the latest disappointment in a string of weakening MACRO data that we have seen for the past month. With every data point that goes by, the downside risk to the largely “guesstimate” GDP number goes up. With the downward revisions to GDP estimates and the ever increasing US debt problems, the double dippers will come out of the woodwork.
As I said yesterday, given the weakness in the durable goods, we are setting ourselves up for a very interesting 3Q10 preannouncement season.
Today’s Durable Goods number came in at -1.0% versus consensus of 1%, which was looking for a pick up from the previous -1.1% number (now revised to -0.8%). Overall, this was the largest Durable Orders decline since August 2009. The mainstream media is focusing on the bullish bias of the core capital spending figure, non defense capital goods ex aircraft, which improved 0.6%, but slowed significantly from the 4.6% rise in May.
New Orders
Demand issues? New orders for manufactured durable goods in June decreased 1.0%. This was the second consecutive monthly decrease and followed a 0.8% decrease in May. Excluding transportation, new orders decreased 0.6%. Transportation equipment saw the largest decrease of 2.4% and is now down 4 out of the last 5 months.
Shipments
In June, shipments of durable goods in June were down 0.3% and are now down for 2 consecutive months. And the “ever important” computers and electronic products (down four of the last five months) plummeted 4.1%.
Inventories
Inventories have been the biggest driver to 1H10 GDP growth and was up 0.9%; Transportation equipment, up for six consecutive months, had the largest increase of 1.1%.
On Friday, we’ll get the BEA’s overstated estimate of Q2 US GDP. As a reminder, our Q3 Macro Theme of American Austerity continues to forecast that A) the denominator (US GDP) will slow in 2H10 and 2011 and B) the numerators for both the 2011 deficit and debt to GDP ratios will continue to grow. The Durable Goods number is further supporting this thesis.
Howard Penney
Managing Director
