Business Orders Up a Tad

In July, manufacturers' orders for Durable Goods were down 24% from a year ago. This strongly indicates that the GDP growth report for the third quarter will also be negative as the worst recession since the Great Depression lumbers on. The increase was due to non-defense airline orders, not Cash for Clunkers, which was my first suspicion. For more, see EconomPic.

The Census Bureau reported that business orders for machinery, computer equipment, and the like was down 24% in July when compared year-over-year. This is a tad better than June's decline of 25%. 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 will report Durable Goods are up 4.9% since June. I prefer year-over-year comparisons. They 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. Since manufacturers' orders are a tad better than last month, the economy may be starting to turn around. Continue to watch the important economic indicators to see if this trend is confirmed.

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• Why Our Economy Is in a Recession

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