Durable Goods Orders Hit All-Time High

The most interesting economic news this week: new durable goods orders spiked almost 23% in the month of July to an all-time survey high. The indicator, measured in millions of dollars of US goods expected to last three years or more, is an interesting measure of expected current and future economy activity. The data are complied from a Census Bureau survey of about 4,000 manufacturers of durable goods.

Last month's jump really stands out looking at the same data series going back to 1994:

Because this is a measure of orders placed, it will be a few years before this work shows up as output in the economy (Gross Domestic Product or GDP measures production of goods and services, not orders). About $70 of that $300 billion in orders was from civilian aircraft manufactures, and it probably takes a minimum of three months to build a commercial airliner. Yet removing transportation orders (which tend to be volatile) still leaves us with an 8% trend over the past year. We won't be able to look back at 3rd quarter GDP until late October to confirm whether or not these orders are going to materialize in increased output.

I am not a fan of single-factor analysis, and these data are very noisy and subject to numerous revisions. I also dislike surveys in general. Yet I find this indicator to generally be reliable, and I think it's worth paying attention to. When you combine these data with the increasingly improving employment situation, relatively low inflation, healthy manufacturing production, positive demographic trends, accelerating loan growth, and the shrinking government budget deficit, we can paint a picture of an economy on the upswing. Even if all of the news isn't great.

I remain surprised with how gloomy investors and my fellow investment managers remain about our prospects, in spite of a growing series of strong economic data. I concede that anything could happen, and we know that a solid economy doesn't mean that we're going to experience strong investment returns, but the persistence of pessimism in 2014 surprises me.