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Kimberly Amadeo

Business Spending Down Due to EuroCrisis

By November 27, 2011

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In October, businesses spent .7% less for machinery and equipment than in September. The Census Bureau's report on said that orders for new jets and autos were down 4.8%, dragging down the total  durable goods orders. Economists blame the Eurozone crisis for dampening foreign demand for American-made goods.

However, orders were up .7% when compared to last year. This is important, because economic growth, as measured by GDP, is also measured year-over-year. This bit a good news, combined with record Black Friday retail sales, means you can expect the fourth quarter economic growth to be positive. (See Durable Goods Spreadsheet in Google docs)

What This Means for You

Manufacturers' orders for durable goods are one of the most important leading economic indicators. That's because it indicates the confidence businesses have in the economy. Even though it was higher than last year, it wasn't much higher. This means that GDP growth, already at a sluggish 2% rate of growth, will probably slow to 1% in Q4.

However, these manufacturers haven't been creating a lot of jobs, anyway. They make make airplanes, trucks and home electronics which are less labor-intensive than service industries. So, a sluggish manufacturing sector won't mean more layoffs.

What's more important for jobs is the merry retail picture. This is more labor-intensive, and could really help the unemployment picture. Furthermore, increased demand at retail will ultimately trickle-down to manufacturing.

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Comments

November 29, 2011 at 1:10 pm
(1) Jim Wygand says:

Kimberly,
The situation in Europe argues for another recession – stronger there than in the USA – but a recession nonetheless unless the ECB can step in. The Black Friday news affirms my claim that a portion of the US problem is cyclical. However, the structural problem remains to be attacked and the Congress continues to be hung up on bickering. We could be out of the woods in short order if the legislature would only get its act together.
Jim

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