A teetering economy

New Orders for Durable Goods, DGORDER, black line, Real Gross Domestic Product, GDPC1, blue line, January 2001 to May 2013, percent change from a year ago, measured quarterly, annualised

Lots of happy news about May’s increase in durable goods, with speculation about the impact on manufacturing.

Durable goods orders is a key economic indicator as this metric leads future economic activity to no small extent. Think of it this way: as orders for durable goods are placed, businesses will either increase or decrease staff levels to provide services, as well as purchase materials necessary for production.

The chart above presents two series: New Orders for Durable Goods (DGORDER, black line) and Real Gross Domestic Product (GDPC1, blue line). Both series capture percent change from a year ago, measured quarterly but annualised. Looking at durable goods we see the overall trend is down, from a peak of 27% YOY in April, 2010. At the same time GDP has effectively flatlined; in other words, in spite of very large increases in Durable Goods some three years ago there has been noticeable impact on GDP.

At the same time the US is spending some $85B in an effort to stimulate the economy. As I’ve written before, it’s not working!.

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