In June, business orders for durable goods rose a welcome 1.6%, helping to send the Dow Jones Industrial Average up more than 225 points. Investors also responded to ECB Chairman Mario Draghi's statement that he "...will do whatever it takes to support the euro." The Census Bureau's report on business orders for machinery, automobiles and equipment is an important leading economic indicator because it signals business confidence in economic growth. However, most of the orders were for aircraft and automobiles. Excluding transportation, durable goods orders were down 1.1%.
Shipments of durable goods rose a mere .1% in June, while inventories increased only .3%. Both of these indicators are part of the U.S. Gross Domestic Product (GDP) measurement of economic growth. This means the second quarter GDP growth rate should be only mildly positive, within the 1-2% range.
However, when you look at business orders year-over-year, the picture is more encouraging. Orders were an impressive 14.2% higher than in June 2011. For a look at the data, see Durable Goods Spreadsheet in Google docs.
What This Means for You
Businesses, like consumers, are cautious. Even though it's highly likely that Congress will extend some or all of the Bush tax cuts in January, business leaders must plan for the worst. That's the main reason for the slowdown in orders for machinery and equipment and even in hiring. They are also waiting for resolution of the eurozone debt crisis.
- Durable Goods as a Component of GDP
- How a Little Country Like Greece Could Create a Global Debt Crisis
- Why You Should Follow Leading Economic Indicators