Is Growth Tapering Off?

Analysis of the recently released statistics, including those of the Commerce Department, demonstrates just how tricky this process can be from month to month. The headlines are encouraging enough as they indicate a gain in durable goods orders of 2.7%. That is good news, right? It would be if the hike in orders was better distributed. However, once again, the transportation sector throws the numbers off.

The airplane manufacturing sector is a huge part of the industrial community, and it is a business that is not known for its smooth patterns. If Boeing has a good month, as they did this time, the durable goods numbers look pretty swell; and if they have a bad month in sales, the numbers look grim. Step one, therefore, is to strip out those airplane numbers to see what else is happening in the sector.

The first blush look at the data is depressing. The numbers suggest a pretty profound decline of 3.6% from last month, and some of the detailed reports on new orders look even worse. That assessment might be premature as this is the time of year that creates problems for statistical analysis. The system used by the Commerce Department is subject to some serious criticism by economists for the way it handles seasonality. This means that what looks like a real collapse in the durable goods numbers may not really be all that awful. This creates some consternation and confusion -- 'what is really happening here?'

Analysis: This is when other pieces of information become critical. The Purchasing Managers Index is a much better month to month gauge as far as the overall manufacturing sector is concerned, but it doesn't necessarily strip out the durable goods makers. For what it's worth, the PMI has been pointing in a pretty confident direction for the bulk of the year.

The manufacturing community is once again between a rock and a hard place. The growth over the last few months has been largely propelled by the anticipation of more robust economic growth and, given the data over the last couple of months, it is a good bet that there will be growth. It is not easy to determine just how much growth there will be, however, and that means that some manufacturers will have overproduced in anticipation of consumer response.

Source: Armada Corporate Intelligence

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