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Kimberly Amadeo

March Durable Goods Orders Down 2% From Last Year

By April 29, 2008

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The March Durable Goods Orders Report shows that manufacturers are losing confidence in the economy. The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased 2.1% in March when compared year-over-year. This is down from the 3.2% growth reported in February, and is the type of the decline one would expect if the economy were headed for recession. Durable Goods Orders have remained in the positive since last September, when orders were down 6%. (Source: Census Bureau, Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures)

By the way, most articles you read compare this month to last month, which showed a .3% decline since February. However, year-over-year comparisons do a better job of predicting the GDP report, which is also year-over-year. (See Durable Goods Spreadsheet in Google docs)

Why are durable goods orders so important? Since they represent the orders for big ticket items, businesses will hold off making the purchases until they are confident in the economy. Therefore, decreasing orders mean decreasing production. And that is not good for GDP growth. That's why the Durable Goods Order report is generally considered one of the more important leading economic indicators.

What This Means for You

The current Subprime Mortgage Crisis has created a general lack of confidence in the economy. Many analysts are concerned about a possible recession in 2008. When the economy is at an inflection point, as it is now, it is important to watch the important economic indicators to get a sense of the trend. Two important reports will be released this week: the Q1 GDP report, to be released Wedndesday, April 30, and the Employment Report, to be released Friday, May 2.

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Comments

May 9, 2008 at 12:53 pm
(1) JKulhavy says:

Please note that references to the collapse of the mortgage market is not specific to subprime mortgages, and is more importantly a consequence of the bursting real estate bubble. Real estate prices had been artificially inflated by speculative investment, and (like all speculative bubbles) what comes up must fall down. Real estate prices have not yet hit bottom, and the 400% – 500% increases in year-to-year foreclosures in some California and Florida markets (and elsewhere) are evidence of the overall loss of some 8 trillion dollars in paper wealth reflected in artificially high appraisals. To match historical house prices, houses will drop another 30% to 50% in price on average throughout the U.S. (That’s trillion with a “t” (i.e., 1,000 times more than a billion).

May 12, 2008 at 7:30 pm
(2) useconomy says:

As I have said in response to other comments, I would love to see your data sources. I agree that we have seen a speculative bubble, no doubt, but how do you get an $8 trillion loss and that housing prices will drop another 30 – 50%?

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