Is The Decline In Core Capital Expenditures Growth A Worrisome Recession Indicator?

Last month Business Insider posted a commentary with the attention-grabbing headline: DAVID ROSENBERG: Here’s Your Big Red Flag That We Could Be Heading For Recession. Rosenberg has frequently included CAPEX among his various recession indicators.

This morning the Census Bureau released the October Durable Goods report for data through October. The CAPEX referenced by Rosenberg is the Manufacturers’ New Orders: Nondefense Capital Goods Excluding Aircraft data series, which is conveniently available in the FRED database. The data goes back to February 1992, so we only have two recessions during this timeframe to evaluate CAPEX as a recession indicator. Here is a look at the monthly data.


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Here is a year-over-year per cent change of the series.


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And, finally, the chart below is the YoY of a 3-month moving average of the complete series. This is the data manipulation used by Rosenberg to support his recession alert.


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 Indeed, the CAPEX 3-month MA has been trending down since March of this year. In fact, the month-over-month data has been trending downward since its interim high on December 2011. I would point out, however, that the latest 3-MA month-over-month change is tiny: -6.6 per cent in September slipping to -6.7% in October.

CAPEX 3-MA: Cherry Picking by Recession Doomsters or Something to Really Worry About?

Ultimately my sense is that this data series manipulation (the YoY 3-month MA) has an insufficient track record to be considered a definitive recession indicator. N=2 is not enough to make reliable recession probability forecasts. But the CAPEX trend is troubling, and I will continue to monitor it for the next several months.

Here are my routine monthly Durable Goods updates:

  • Durable Goods Orders
  • Real Durable Goods Per Capita

The next Durable Goods update, including CAPEX, is scheduled for December 24th.

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