Durable Goods Report Forecasts Slowing Economy

While the business press and the stock market celebrated a positive Durable Goods Orders Report yesterday, I'm not breaking out the bubbly yet. On Wednesday, the Commerce Department reported that business orders for machinery, computer equipment, and the like increased 3.4% in March. This was better than the 2.4% increase in February and much better than the 8.8% decline in January. Wall Street celebrated because it looked like businesses were spending more, which meant they were getting more confident in the economy.

However, when one looks at year-over-year changes, a very different picture emerges. When compared to last year, March durable goods orders actually declined by 2%, worse than February's year-over-year decline of .4%, and January's increase of 2%. (If you want to check my numbers, its the seasonally adjusted figures.) In fact, this softening trend in durable goods orders has been going on since last April.

Why are durable goods orders so important? Well, since they represent the orders for big ticket items, businesses will hold off making the purchases if they aren't confident in the economy. Furthermore, declining orders mean declining production. And that means a decline in GDP growth. That's why the Durable Goods Order report is generally considered a leading indicator.

What This Means for You

This means that it would be wise to start being more conservative in your own durable goods orders. Hold off buying any big ticket items yourself until we see whether this softening trend continues. And stay tuned for the employment report, due on May 4, which is also another good leading indicator.