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Friday, September 28, 2012

Durable goods

The durable goods data came in worse then expected.  However, transportation played a big role.  Check out these charts.

This data series started in 1992 and covers the last two recessions.  The only two times we had this big of a drop we were in a recession or on the verge.

Here is the chart of transportation orders.

That looks like a 20% drop year over year.  Like the other chart, the other two times it happened we were in are about to have a recession.

Here are durable goods without transportation.

Even without transportation, durable goods have taken a big hit the last few months.  In 1998, we had similar negative levels without a recession.  That dip happened at the time of a 20% pullback in the market and the Long Term Capital Management debacle that caused quite a bit of fear.  Clearly no fear around this time.

This chart shows the data not seasonally adjusted.


There was one drop of this magnitude back in 1992 that was not associated with a recession.  Just like the seasonally adjusted data, this was a serious drop usually associated with a recession.

Here is the data in dollar form.

We still have not gotten back to 2007 levels.  This is not adjusted for inflation or population which would make it look a lot worse.  We can see the severity of the recession and weakness of the recovery.  The magnitude of the drop is clearly different then any dip since 2009.  Looking back at the chart it sure looks like the onset of a recession to me.

Last month industrial production took a big dump.  This drop in durable goods orders will likely continue that trend.  If you look at the data realistically, it is getting pretty hard to say we are not in a recession already.  The fact that the data is not a reflection of some kind of panic is important.  Prior "soft patches" the last two years were essentially caused by market crashes.  The economic data and markets recovered quickly.  The current economic slowdown is global in scope and not panic driven.  It also seems to be gathering strength. I think you can expect to see continued decline in the economic data going forward.  It remains to be seen how forgiving the market will be.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.