Investment Contrarians

Why Today’s Weak Durable Goods Numbers Foreshadow Low Confidence

By for Investment Contrarians |

Today’s Weak Durable GoodsConsumers appear to be holding back on buying non-essential goods, and this could impact the economic recovery.

The durable goods orders contracted a dismal 5.7% in March, according to the United States Census Bureau, representing the largest decline in seven months—a far cry from the 4.3% rise in February and well below the Briefing.com estimate calling for a four percent decline.

Taking out the volatile transportation portion, durable goods fell 1.4%, versus the Briefing.com estimate of -0.1%, equaling the second straight month of declines.

The durable goods readings have largely been inconsistent, as reflected in the chart below, and suggest the economic recovery may be at risk.

Durable Goods Orders stock chart

      Chart copyright © Lombardi Publishing Corporation, 2013;
Data source: United States Census Bureau, April 25, 2013

When consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact the economic recovery, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.

But whether it’s the added taxes or the fragile confidence from the lack of strong jobs growth, the decline in the demand for goods that are deemed non-essential should be a red flag that not everything is proceeding along smoothly, which could affect the economic recovery.

The fact remains that jobs creation is fragile and not expected to ratchet higher until 2014 and 2015, due to the slow economic recovery.

The recent 88,000 jobs created in March was weak, so it will be interesting to see what happens with the April non-farm payrolls reading due next Friday.

Retail sales have also been off and on. In March, retail sales excluding autos fell 0.4%, below the Briefing.com estimate for a gain of 0.3% and down from one percent in February.

The Thomson Reuters Same Store Sales Index (comprising 17 U.S. chains) increased 1.5% in March, below the 1.8% estimate and the weakest reading since September 2009.

There are clearly signs of potential stalling in the economic recovery driven by lower consumer spending.

Consumer confidence in March was weak at 59.7, according to the Conference Board, and was well below the Briefing.com estimate of 65.0 and the 68.0 in February. Moreover, the readings are nowhere near what I would view as confident. In fact, the readings were over 90 in December 2007, which was prior to when the financial crisis and recession took hold.

My concern is that without strong jobs creation, there will continue to be issues with confidence and the rate of the economic recovery—as evidenced in the decline in durable goods.

If you are expecting the economic recovery to pick up anytime soon, I suggest you reconsider.

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