Durable Goods Orders are Down: What does it mean Corky?
(http://guffman.com) or (http://guffman.warnerbros.com/newspaper.htm)
The Commerce Department reported Friday that new orders for durable goods fell by 5.9%, way above the 2.4% decline estimated by 18 economists surveyed by Dow Jones Newswires and CNBC. (Dow Jones: http://online.wsj.com/article/0,,BT_CO_20021025_005490-search,00.html?collection=autowire/30day&vql-string=%28%28%22Durable+Goods%22%29%3Cin%3E%28article%2Dbody%29%3Cor%3E%28article%2Ddoc%2Dtype%3CCONTAINS%3E%22Durable+Goods%22%29%29) SO does this mean we are headed for the dreaded douple dip? As has been the case with this economy for the past 9 months .... "the experts" aren't really sure. Superficially, this report is a really bad sign; however, there's more to this report than meets the eye ... 3 potential drivers for this low report; 1) Durable Goods (DG) are notoriously volatile; 2) Seasonality effect, or 3) It's stuck on a boat in the SF Bay
1) Volatility: Due to amongst other things, aircraft, being included in DG are highly volatile. If you strip out aircraft, DG drops *only* 2.6%, much more in-line w/ economists expectations.
2) Seasonality: Apparently companies report different purchases at different times in the quarter. Lou Crandall, Chief Economist for Wrightson Associates (http://www.wrightson.com/) says, ""The seasonal adjustment problems are related to quarter-end buying patterns in the corporate sector," noted Crandall. "In many industries, a disproportionate number of orders are booked in the final weeks of each quarter. Thanks to this historical pattern, the seasonal patterns look for an increase of roughly 6% in the unadjusted figures for total durable goods orders and 20% for the key capital goods series."
3) PMA Lock-Out / ILWU "slowdown" (depending on your POV): Tony Crescenzi, market strategist at Miller Tabak and Co. (http://www.millertabak.com/home.html) "Orders are calculated not by adding up (actual) orders (received), but by (contrasting) the monthly change in shipments and the monthly change in unfilled orders. If shipments fall and unfilled orders stay the same, this gets translated into a drop in orders," Crescenzi noted. He concluded that, "New orders fell since shipments were likely to have been lowered by the port closures. Moreover, the impact will likely be larger in October than in September."
Whatever the reason in the lower DG report, economists are lowering their GDP estimates for Q3, which come out on Thurs., 10/31. For example: Dave Greenlaw, senior economist at Morgan Stanley, lowered his estimate for third quarter GDP growth to a 3.1% annual rate from 3.5%. Ian Morris, chief economist at HSBC Securities, made a similar downward revision to his more robust GDP forecast and is now looking for a 3.9% instead of a 4.2% rate. We'll be all ears on Thursday ...
2:27:20 PM 
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