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Kimberly Amadeo

Durable Goods Not Really Improving

By June 24, 2009

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The Durable Goods Orders Report for May shows that, while orders are up compared to last month, they are down more than 25% compared to last year. to the . The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased 26.6% in May when compared year-over-year. The worst drop in the 2001 recession was a 20% decline in June 2001. (Source: Census Bureau, Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures)

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 has led 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.

By the way, most articles you read compare this month to last month, increasing 1.8% 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)

What This Means for You

Growing unemployment means Americans are spending less, which is further slowing manufacturing. This will increase unemployment, as businesses cut costs to stay in business. Continue to watch the important economic indicators to see when this vicious cycle will start to turn around.

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