QUOTE OF THE WEEK
“Success is not final, failure is not fatal. It is the courage to continue that counts.” – Unknown
TECH CORNER
This year started off with a major miss to the downside from the Durable Goods Orders Index. Durable goods are defined as purchases of items that last a long time vs consumer items that are consumed in the short term such a groceries, restaurants, etc. Durable goods consist of items that you plan to keep for the long term such as automobiles, washing machines, televisions, and even airplanes.
New orders for durable goods declined -6.1% in January (-6.3% including revisions to prior months). Orders excluding transportation declined -0.3% (-0.9% including revisions), versus a consensus expected +0.2%. The largest decline came for orders of commercial aircraft, while motor vehicles and parts fell a more modest -0.4%. To add insult to injury, December orders ex-transportation was revised down from a +0.5% to a 0.1% decline.
As a side note, retail sales have declined in three of the past four months. Manufacturing production, excluding the auto sector, has declined in three of the past four months and durable goods are following suit by also being down in three of the last four months.
A number of factors are likely to keep the path forward rocky as we move through 2024. Two of those factors are restrictive monetary policy from the Federal Reserve and the tightening of lending standards following the stress in the banking sector.
What does this mean for the probability of a recession going forward? Combining Housing and Durable Goods is an indicator of a possible recession so in looking at the graph below, you will see that every time housing and durable goods have declined, a recession has followed. Anything can happen but it would take a major shift in Fed policy of lowering interest rates significantly and quickly, plus, a change from monetary tightening to monetary easing which may not even work due the lag effect of the Fed’s current policy.
