Our guest blogger covering Allahpundit’s vacation and my state-fair broadcasting schedule, QandO’s Bruce McQuain, already addressed the problems that create and extend economic stagnation.  This morning’s big economic indicator shows that we can expect it to extend even further — or perhaps get worse.  The durable goods report for July showed a 7.3% decline in output, the worst in several years, and it’s not just limited to a hiccup in reporting:

New Orders. New orders for manufactured durable goods in July decreased $17.8 billion or 7.3 percent to $226.6 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases and followed a 3.9 percent June increase. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 6.7 percent. Transportation equipment, also down following three consecutive monthly increases, led the decrease, $16.7 billion or 19.4 percent to $69.7 billion. This was led by nondefense aircraft and parts, which decreased $14.5 billion.

Shipments also fell 0.3%, led this time by computers and electronic products, which dropped 3.2%, as inventories increased by 0.4%.  The transportation numbers were mainly driven by a drop in commercial aircraft, which is a particularly volatile category — but even that doesn’t entirely explain the sudden reversal. The drop in computer and electronics tracks with a big drop in capital goods (also impacted by transportation), which is an indicator of business investment in future business growth.  At least in July, businesses bet the other way.

CNBC’s Bob Pisani warns that readers shouldn’t just write this off as a statistical fluke, and that this will undoubtedly influence the Fed’s short-term policies:

Even the much-parsed ex-transportation figure came in far below expectations with a 6.7 percent plunge. Excluding defense and air, the core number was down 3.3 percent, after four consecutive up months.

You can’t even blame it on seasonality or some statistical fluke. This was the most high profile data point this week, and the result greatly complicates the taper talk.

The pressure is really on the nonfarm payroll report for August, due next week. You really need a strong number for the Fed to even flirt with scaling back its bond purchases in September. Consensus for nonfarm payrolls is around 166,000, but that number needs to be really strong —arguably over 200,000.

The U.S. Treasury 10-year yield dropped about 3 basis points on that news, to 2.79 percent. This is the second day in a row the 10-year has dropped, following Friday’s disappointing July New home sales report.

Last Friday, two regional Fed presidents openly bickered about whether the time had come for the Fed to start decreasing its bond purchases and withdraw that influence on the economy. Atlanta Fed president Dennis Lockhart argued that recent figures showed that the economy was on a “moderate growth path,” which this report refutes rather loudly.

This big drop suddenly makes the report on July job growth at the end of next week a lot more interesting.  Employment lags shifts in growth, though, and one month of bad reports isn’t usually enough to frighten off expansion.  This can be a chicken-egg argument, however, and it seems that businesses made a decision not to invest in growth at least for one month, and that may well be reflected in the next monthly jobs report.