Today's Durable Goods Number Just Crushed Any Expectation For QE3 Next Week

This post is an excerpt from the permanent Durable Goods and Factory Orders Chart page, updated whenever new data is published. Bookmark that page for future reference.

June Real Durable Goods Orders, adjusted for inflation and not seasonally manipulated, were up 4.9% over June 2011. That compares with a 4.4% gain in May. The growth rate is increasing. In adjusting for inflation, this measure attempts to represents actual unit volume of orders. Also, the use of actual, versus seasonally manipulated (SA) data allows an accurate view of the trend. With SA data, this may not be the case, since SA data can overstate or understate the real underlying change by attempting to fit the data to a standardized curve. There are no such issues when using the actual data (see Why Seasonal Adjustment Sucks).

durable goods

Photo: Wall Street Examiner

Real Durable Goods Orders Chart- Click to enlarge

Overall new orders volume remains well below the 2004 through 2007 levels, and the uptrend has slowed from the dramatic rebound of 2009-10.  However, 4.9% growth ain’t too shabby.

June is virtually always an up month. This June was up by 5% from the May level.  That compares with a gain of 5.3% in June 2011. The average June change over the previous 10 years was a gain of 6.4%. This year’s change was better than last year but a little below the 10 year average, which I suspect was skewed upwards during the bubble years. 2009 and 2010 also had very sharp gains in a bungee rebound from the economic crash in 2008.

On a quarterly basis, the June level of orders is usually below the March level. The average difference for June versus March over the previous 10 years was  a drop of 5.2%. Last year it was 8.3%.  However, this year the June level was down just 2.4% versus March.

On the chart, the trend is stronger than it was in March, when the data was showing a year to year decline.

Finally, the headline number was a 1.6% gain month to month SA. That beat the conomists consensus of 0.3%. As usual, they were looking at the wrong data. The real time withholding tax data showed the economy gaining ground. Conomists were mostly convinced that it was slowing.

In comparing the charts of real durable goods and stock prices, the correlation between the two suggests that there’s no reason to think that stocks will sell off yet. By the same token at a 4.9% annual gain, there’s no reason to expect Bernanke to announce more QE next Wednesday.

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