Durable goods orders drop 3.6% in April

posted at 9:23 am on May 25, 2011 by Ed Morrissey

If the US economy got off to a bad start in 2011 with a 1.8% GDP annualized growth rate, the start of the second quarter looks like it might be worse.  The Commerce Department reported this morning that durable goods orders fell 3.6% in April after a 4.4% increase the month before.  Orders dropped across the board:

New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today.  This decrease, down two of the last three months, followed a 4.4 percent March increase.  Excluding transportation, new orders decreased 1.5 percent.  Excluding defense, new orders decreased 3.6 percent.  Transportation equipment, also down two of the last three months, had the largest decrease, $4.9 billion or 9.5 percent to $46.7 billion.

Even with this sharp drop in orders, inventories continued to expand, and have now reached record highs:

Inventories of manufactured durable goods in April, up sixteen consecutive months, increased $3.2 billion or 0.9 percent to $350.5 billion.  This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.7 percent March increase.  Transportation equipment, also up sixteen consecutive months, had the largest increase, $1.0 billion or 1.0 percent to $106.1 billion.  This was also at the highest level since the series was first published on a NAICS basis in 1992 and followed a 2.4 percent March increase.

Bulging inventories mean that goods aren’t moving.  Until inventories begin to decline, orders will continue to fall as sellers run out of cash to buy more goods.  We will soon start to see sharp discounting to get rid of inventories, which means narrower profits and less capital for future growth.

The decrease in capital goods was even more dramatic, at 7.3% in the non-defense market.  That points to a significant decrease in business investment, which would indicate that the private sector has turned bearish on the weak recovery from the Great Recession.  If so, the tax break given to businesses as part of the deal made between the White House and Congress in December that allowed businesses to take a 100% write-off on FY2011 capital investment appears to have already run its course.  That’s bad news for the Obama administration, which had hoped to ride a rising economic wave to a second term in office for Barack Obama.

Reuters is once again shocked to discover bad economic news:

New orders for long-lasting U.S. manufactured goods fell more than expected in April to record their largest decline in six months as aircraft and motor vehicle orders tumbled, a government report showed on Wednesday. …

Economists polled by Reuters had expected orders to decline 2.2 percent last month.

The article first focuses on the drop in transportation, but then tells a little different story in the end:

The report showed weakness across the board, with big declines in orders for machinery, capital goods, defense aircraft, communications equipment and computers. However, orders for computers and electronic products rose.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 2.6 percent last month after an upwardly revised 5.4 percent increase in March. Economists had expected a 0.2 percent gain from a previously reported 4.3 percent rise.

Get ready for a very bumpy ride in Q2.  With inventories cresting to new record levels and businesses unwilling to make capital investments, we’re not going to see much new hiring at all this year, and we’ll be lucky not to tumble back into a full recession.

Update: Suitably Flip is suitably horrified over the results.

One other point should be made.  Some may write this off as a consequence of the supply-chain disruptions in Japan, but that would have impacted deliveries, not orders.  We would see big backlog increases, not inventory increases; this report shows the opposite.  The Japanese catastrophe wouldn’t have stopped American businesses from engaging in capital investments, either.


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We will soon start to see sharp discounting to get rid of inventories, which means narrower profits and less capital for future growth.

Well at least some good bargains can be had. I’m trying to look at the glass as having at least a few drops in it.

Doughboy on May 25, 2011 at 9:26 AM

We don’t make things because we are Union Strong!

“Look for.. the Union label, when you are buying a coat, shirt or blouse. Remember somewhere, someone is working…”

Remember that song?

Well, now they sing it in China. Good on ‘ya Unions. Well done.

Key West Reader on May 25, 2011 at 9:26 AM

“Ignore all of this economic mumbo-jumbo stuff…I killed Bin Laden, remember?”

-PBHO

Bishop on May 25, 2011 at 9:27 AM

Abolish the unions.

Bring back the jobs.

Key West Reader on May 25, 2011 at 9:27 AM

NY-26 confirms that this is the kind of thing Americans want.

mankai on May 25, 2011 at 9:30 AM

Unions are now taking over the crop insurance industry:

Read:

Federal Employees Union Attacks Crop Insurance Agents

Employees of the USDA’s Farm Service Agency (FSA) are actively lobbying the USDA to be the sole agency to handle the processing of crop insurance claims and collecting acreage reports.

The FSA’s employee union, the National Association of FSA County Employees (NASCOE), has asked its members to contact USDA and tell them that, “…FSA of the USDA should be the sole designated entity to take the acreage reports for all USDA purposes.” Further, “agents have a motive for selling policies that are based upon acreages” and that “it does not make sense to pay a crop insurance agent to take the report on insured crops and FSA take acreage reports on all other crops.”

Last week, PIA National issued an urgent Grassroots Action Alert to PIA’s crop insurance agents, asking PIA members to file comments with the USDA opposing the FSA employee union’s stance. The comment period ended last Friday May 20. Thanks to all the PIA members who responded and filed comments.

Key West Reader on May 25, 2011 at 9:31 AM

Answer: $4 Trillion stimulus this time around!

/Krugman

mankai on May 25, 2011 at 9:31 AM

“Ignore all of this economic mumbo-jumbo stuff…I killed Bin Laden, remember?”

-PBHO

Bishop on May 25, 2011 at 9:27 AM

2012 could look a lot like that SNL skit from 1992 where Dana Carvey as Bush 41 walks into a diner looking to mingle with voters and keeps saying “Persian Gulf” to everyone.

Doughboy on May 25, 2011 at 9:32 AM

This is the result of just-in-time supply.

Just in time for the second half of the double dip recession.

Akzed on May 25, 2011 at 9:33 AM

JP Morgan and Goldman Sachs have both lowered Q2 GDP estimates over the past few days.

Mark1971 on May 25, 2011 at 9:33 AM

$4 a gallon gas will do that to an economy. And while that may be due to speculators, they only speculate because there’s turmoil in the mideast (more so than usual) and The Whine has effectively stopped oil exploration in the US.

rbj on May 25, 2011 at 9:33 AM

QE3 coming soon. The only question is what form it will take.

Mark1971 on May 25, 2011 at 9:34 AM

It’s a good thing 2011 is 3 years from now.

Chuck Schick on May 25, 2011 at 9:34 AM

Unexpected.

MassVictim on May 25, 2011 at 9:36 AM

A. I killed OBL

B. Paul Ryan wants to kill grandma.

Obama/Biden 2012!

Sadly, that may be enough to win.

mankai on May 25, 2011 at 9:36 AM

Are firearms and ammunition considered durable goods, because those industries are moving product like crazy. Huh.

Bishop on May 25, 2011 at 9:38 AM

No one this side of an Ivy League Poli Sci/Journalism class could have ever seen that starving an economy of energy will send that economy into a tailspin…

MNHawk on May 25, 2011 at 9:38 AM

*shrug*

Oh, well.

Who is John Galt?

turfmann on May 25, 2011 at 9:38 AM

Key West Reader on May 25, 2011 at 9:31 AM

IDK this.
My bro in law is a crop insurance agent.

Badger40 on May 25, 2011 at 9:40 AM

Yay!!!
Recovery Summer v3.0 is here!

Dr. Carlo Lombardi on May 25, 2011 at 9:41 AM

Joe Biden says: “Just wait till this summer!”

Rocks on May 25, 2011 at 9:41 AM

Are firearms and ammunition considered durable goods, because those industries are moving product like crazy. Huh.

Bishop on May 25, 2011 at 9:38 AM

Hubby had a box of ammo on the dash when we went to ‘town’ for something.
I went to put it in the glove box & he crabbed at me to leave it there.
I said with the price of ammo, somebody might be tempted.
Bro in law’s got reloading equipment.
I keep encouraging hubby to get with it.

Badger40 on May 25, 2011 at 9:42 AM

Speaking of Joe Biden where’s he been lately? I think even the Vice President is going Galt.

Rocks on May 25, 2011 at 9:42 AM

IDK this.
My bro in law is a crop insurance agent.

Badger40 on May 25, 2011 at 9:40 AM

Tell him to get with his broker.

It’s a behind closed doors deal on top of the flood losses.

Key West Reader on May 25, 2011 at 9:44 AM

Speaking of Joe Biden where’s he been lately? I think even the Vice President is going Galt.

Rocks on May 25, 2011 at 9:42 AM

Wasn’t he put in charge of coming up with a deficit-reduction plan? We’re in the very best of hands, I tell ya.

Doughboy on May 25, 2011 at 9:44 AM

My bad. I’m too skeered to buy nothing. ‘specially Obamanomics.

tomg51 on May 25, 2011 at 9:46 AM

IDK this.
My bro in law is a crop insurance agent.

Badger40 on May 25, 2011 at 9:40 AM

I alerted Andrew Breitbart as well, since he is well in tune with the FDA. Which is tightly knitted to the USDA.

If the Unions deny our farmers the right to indemnity and the right to re-plant?

Color the USA done. No crops? No food?

Done.

Key West Reader on May 25, 2011 at 9:47 AM

Badger40 on May 25, 2011 at 9:42 AM

Ammo prices seem to be stabilizing, at least in my area; 9mm has actually dropped about $1.50 per box.

I highly encourage reloading, most rounds can be produced at home for half of store cost and it’s a fun hobby. I usually watch a zombie flick while making ammo, fantasizing about the undead apocalypse.

Bishop on May 25, 2011 at 9:51 AM

This report seems a little racist.

DavidM on May 25, 2011 at 9:51 AM

Too bad all of this bad economic news will be trumped by Paul Ryan’s plan to kill granny.

And for what was at stake in ’12 (pretty much a Dem wipeout), Ryan’s unforced error will go down as the dumbest political move in generations.

kevinkristy on May 25, 2011 at 9:52 AM

I could go for another 4 years of this-America

artist on May 25, 2011 at 9:53 AM

I usually watch a zombie flick while making ammo, fantasizing about the undead apocalypse.

Bishop on May 25, 2011 at 9:51 AM

LMAO!

Badger40 on May 25, 2011 at 9:57 AM

DIP ahead.

Axeman on May 25, 2011 at 10:03 AM

Hey Reuters…..

It’s the President, stupid!!!

capejasmine on May 25, 2011 at 10:07 AM

This convinces me that every sign the libs pointed to the last year or so to claim an economic recovery are merely the transitory result of the government spending massive amounts of money it doesn’t have. There has been absolutely no recovery in the real economy per se. To the contrary, the spending of the government will only make the crash that much worse when the inevitable happens. Obama’s just hoping he can stall that off until after 2012 and couldn’t care less about the disasterous consequences this will entail.

tommyboy on May 25, 2011 at 10:08 AM

Households are really hurting with few jobs and high gas prices. Obumbles and his lefty cohorts might think they are smart by driving up the price of gas but this rise has a knock on effect with folks putting most their disposable income in the gas tank. It’s sure to get much worse !

Sandybourne on May 25, 2011 at 10:11 AM

It’s more and more likely we’ll be in a double dip recession by end of this year or next. Obama can’t talk his way out of that. He’ll change the subject and talk Paul Ryan, but it won’t be enough.

IR-MN on May 25, 2011 at 10:12 AM

Not a positive report, but there was an upward revision of the March number that kept the market from selling off after the report came out around 8:30AM.

dedalus on May 25, 2011 at 10:14 AM

Once the interest on that inventory starts to add up, they’ll sell it cheap just to get it out.

John Deaux on May 25, 2011 at 10:17 AM

People are scraping by trying to fill their gas tanks. That doesn’t leave a lot of disposable income for other things now, does it.

Dems are handicapping the economy in the name of green crap.

capejasmine on May 25, 2011 at 10:29 AM

This is horrific news, much worse than a couple % of unemployment…it isn’t as “sexy”, but this indicator of the direction of the economy, not just how healthy it is now, but which way the economy is actually moving.
But….most people and journalists have no idea, so it’s just a “weak” economy, that is recovering.

right2bright on May 25, 2011 at 10:35 AM

Key West Reader on May 25, 2011 at 9:31 AM

Interesting, I am completely out of the loop on this kind of stuff, thanks for the info.
I am not sure of the impact, if you could enlighten it would be helpful.

right2bright on May 25, 2011 at 10:38 AM

Key West Reader on May 25, 2011 at 9:31 AM

Public employee unions are the militant wing of the democrat party.

Vashta.Nerada on May 25, 2011 at 10:40 AM

Here come the layoffs of those that HAD work…

golfmann on May 25, 2011 at 10:50 AM

On the good side – if you have money – great deals all across the board.

On the bad side – more and more people have less money to spend.

Considering the extra inventory wasnt purchased in Q1 – which it normally is to empty the shelves from Q3/Q4 production, Houston there is a huge problem. The majorty of purchases over the next 3 months are leisure-based – so it would take roughly end of Q3/Q4 2011 for duarable goods to kick up again…

On a interesting side note – “jobs” per se wont be deeply hit – because global companies are flourishing in other countries. Intel’s CEO just gave a great post Q1 interview concerning the growth of revenue, outside of America.

Odie1941 on May 25, 2011 at 10:57 AM

Interesting, I am completely out of the loop on this kind of stuff, thanks for the info.
I am not sure of the impact, if you could enlighten it would be helpful.

right2bright on May 25, 2011 at 10:38 AM

In Floriduh we had a few tornado’s blow through… I had to inspect some structural losses. What was odd in my opionion was the blatant burning of fields (I have pics) because the loss was wind related; not fire. They burned thousands of acres of tomato and strawberries, corn and some wheat.

When I asked the farmers why they burned, they replied, “The feds told us we had to burn it up, not save it”.

I have photographic evidence statewide and Floriduh is not exactly the croppin’ fields of the world.

Imagine what they are doing in the Heartland.

Key West Reader on May 25, 2011 at 11:00 AM

Public employee unions are the militant wing of the democrat party.

Vashta.Nerada on May 25, 2011 at 10:40 AM

Actually, it is the lawful wing of a legalized pseudo Mafia.

Al Capone said he’d never be defeated, and he was right.

Key West Reader on May 25, 2011 at 11:03 AM

You could (have) planted a home garden, but…

Doh.

You cant’ have your farking garden. Get it? Got it? Good!

Key West Reader on May 25, 2011 at 11:09 AM

Money is going to pay High Gas Prices

jp on May 25, 2011 at 11:12 AM

ou could (have) planted a home garden, but…

Doh.

You cant’ have your farking garden. Get it? Got it? Good!

Key West Reader on May 25, 2011 at 11:09 AM

Grow your own food. Geh hed. Try it. I dare yah. Nice farm ya got there. Hate to see nuttin happnin wit it. And don’t meke me look at dem chickens ya gots cuz you know how much I like chicken.. And cows! Holey cows, there!

Key West Reader on May 25, 2011 at 11:14 AM

It’s more and more likely we’ll be in a double dip recession by end of this year or next. Obama can’t talk his way out of that. He’ll change the subject and talk Paul Ryan, but it won’t be enough.

IR-MN on May 25, 2011 at 10:12 AM

It all depends on how fast Timmy Turbo Tax can print money.

Roy Rogers on May 25, 2011 at 11:45 AM

I saw gas lines that extended out into the street for 1/2 a block today at a station selling gas for $3.63 just south of Boston.

This is the first time since the Carter admin I’ve seen a gas line, I don’t think it’s a coincidence but rather an indicator.

Alden Pyle on May 25, 2011 at 11:50 AM

Can Obama say ‘Double Dip’?

JimP on May 25, 2011 at 12:41 PM

I see crr6 somehow missed this thread… so I’ll help…

Count it!!

mankai on May 25, 2011 at 1:40 PM

Can Obama say ‘Double Dip’?

JimP on May 25, 2011 at 12:41 PM

The only real job little Bammie ever had was working in a Hawaii ice-cream shop as a teenager, so he probably can say ‘double dip’.

slickwillie2001 on May 25, 2011 at 1:47 PM

When the economy is growing, durable goods orders rise. Inventories generally fall as a recovery takes hold, which prompts business spending to replenish inventories.

When the indicators are going the other way, so is the economy.

Of course, one month’s data isn’t sufficient to tell how bad things are or will get. But it is hard to see HOW things can improve with the high and rising energy and food costs which suck up much of what used to be “disposable income” for those who have jobs.

Also, work force participation is falling. Recent minor dips in the unemployment rate aren’t the result of job creation, but of people who have exhausted their benefits and are no longer even looking for work or expecting to return to work.

We have more people in the USA now who are not working than ever before.

Hard to believe it’s this bad, because jobs are the last thing Comrade Obama thinks about before he goes to bed at night and the first thing he thinks of in the morning before leaving for the golf course.

Adjoran on May 25, 2011 at 3:34 PM

And next month it’ll be up 3.4% or something.

WTH?

Dr. ZhivBlago on May 25, 2011 at 3:44 PM