Another Sign Economic Slump Could Be Bottoming

The May Durable Goods Orders Report shows that manufacturers may be gaining a little confidence in the economy. The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased .09% in May when compared year-over-year. Though still negative, this is not as bad as the 2.1% decline reported in April, and could be an indication that the economic slowdown could be bottoming out. (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 .6% Increase since April. 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, which will lead to a slowdown in 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

Last year's Subprime Mortgage Crisis combined with this year's high oil prices has lead to a lot of economic fear. However, a stabilization in the decline of Durable Goods orders decreases the likelihood of a protracted recession in 2008. Continue to watch the important economic indicators to see how long the economy will remain in this slump. Two important reports will be released shortly: the Employment Report, to be released Thursday, July 3 and the Q2 Preliminary GDP report, to be released Thursday, July 31.

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