April Durable Goods Orders Down 2% From Last Year

The April Durable Goods Orders Report shows that manufacturers are continuing to lose confidence in the economy. The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased 2.1% in April when compared year-over-year. This is even worse than the .5% decline reported in March, and is the type of the decline one would expect if the economy were headed for recession. (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 .5% decline since March. 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. Continued declines in the Durable Goods Report raises further concerns 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 shortly: the Q1 Preliminary GDP report, to be released Thursday, May 29, and the Employment Report, to be released Friday, June 6.

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