INDICATOR: March Durable Goods Orders
KEY DATA: Durables: -5.7%; Civilian Aircraft: -48.2%; Business Investment: +0.2%
IN A NUTSHELL: "The Boeing boomerang may have crashed orders but there was little strength anywhere else."
WHAT IT MEANS: Demand for big-ticket items plummeted in March as orders for civilian aircraft crashed. Okay, bad descriptor, but you get the picture. Boeing's orders tend to be up and down and their backlog is so far into the future that their monthly changes have to be taken out of the discussion. Still, even when you exclude aircraft, there were few places where orders picked up. Computers and communication companies did quite well and there was a small increase in motor vehicles but demand for metals, machinery, electrical equipment and appliances was down. Non-defense capital orders excluding aircraft, a measure of business investment, did post a modest increase, but nothing to indicate any major exuberance. And with order books thinning, there is not a whole lot of hope that the manufacturing sector will accelerate sharply anytime soon.
MARKETS AND FED POLICY IMPLICATIONS: This was a weaker than expected report which adds to the belief that the economy has hit another soft spot. Why, is a different discussion. The sequestration impacts are beginning to show up. This has been aptly described as a slow-motion train wreck and the crash is now underway. Consumers have been adjusting to the higher taxes and while lower gasoline prices are helping, the positive impacts are probably not yet balancing the higher tax payments. And given that Washington remains a vast wasteland, there is no reason to think fiscal policy will become sane anytime soon. With that said, we should see a decent GDP report on Friday. Consensus is for about a 3% rise. After having been an outlier on the high side for six months, I am now a little bit below the average. The weak orders create the likelihood that spring growth will be slower. Investors are probably totally confused about where the economy is going and with prices having come so far, continued volatility in the markets is likely.