Data for US durable good orders in November were released this morning, and very strong they were, too, adding to the gathering impression that the US economy is set for strong growth in 2014. Durables orders rose by 3.5% in the month, the strongest gain since January.
The report prompted a business reporter on one of the Canadian TV networks to claim that the data meant that US consumer goods spending would be strong in the early part of next year. No, it doesn't! This interpretation is wrong in at least two important ways.
First, the durables report is clearly about investment, not consumption. The fact that companies are stepping up orders for durables may suggest that they're confident that somebody will buy the stuff once it's made. But they could be wrong: if consumers don't step up to the plate, there'll be a whole lot of inventory sitting around, which would in due course act as a serious drag on growth. (This relates to a very venerable economics concept referred to as the "accelerator", if you care.) Moreover, as the name should suggest, durables goods take a lot of time to produce, so goods being ordered today won't be produced for many months -- even years in some cases, such as aircraft.
And that's the second flaw in the reporter's analysis. If he'd bothered to look at the details of the report, he might have noticed that the strongest gains were posted by orders for non-defense aircraft (up 21%; Boeing had a banner month) and defense aircraft (up 10%). Unless you imagine that the super-rich are going on a plane-buying splurge, these items are never going to register in the consumption data.
I once told a colleague that one of the main functions of an economist in a dealing room was to make sure that the traders weren't bamboozled by all of the junk analysis that appeared within minutes of every important data release. Seems that's just as true today as it's ever been.
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Merry Christmas and best wishes for the New Year to all readers of the blog!!
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