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Durable Goods Signal Recession

Published 09/24/2015, 10:51 AM
Updated 03/27/2022, 08:40 AM

In stark contrast to the upcoming final second-quarter GDP figures due tomorrow was today’s durable goods data, which showed the US economy continues to edge toward a recession despite the headline numbers. Core durable goods orders flat-lined month over month at 0.00% while the regular durable goods figure fell by -2.00% during the same time period. When stripping out defense and aircraft, the number experienced a more modest drop of -0.20%. However, what proved most concerning about the latest release was the new orders component which contracted by -2.00%. Essentially speaking, this is a strong indication that the American economy is already mired in recessionary territory despite expectations of soaring GDP numbers. However, main street economic barometers continue to oppose the headline economic data. Global bellwether Caterpillar (NYSE:CAT), a mainstay multinational of construction and infrastructure, announced 4000-5000 job cuts by the end of 2015 in a cost-cutting effort aimed at alleviating the woes caused by the downturn in the mining and energy sector which has contributed to declining revenues.

GBP/USD

Expectations for tomorrow’s final second quarter GDP reading are currently seeing a consensus estimate 3.70% economic expansion. While this number is also positive on the headline, what needs to be examined is the underlying fundamentals behind the number. Exports might not be as weak as previously expected, but finding export growth in the current global environment is challenging. Moreover, a strong contributor to the latest solid GDP print will probably be the result of diminished imports which has helped the trade deficit shrink in recent months. Broad commodity deflation is benefiting American manufacturers as they stretch the value of the dollar much further. However, commodity deflation in general is not a strong sign for the global economy. Despite the temporary lift in purchasing power, a longer-term rebound in manufacturing figures is unlikely for the United States as more jobs in the sector are hemorrhaged thanks to more competitive devaluation happening across the globe. While the immediate impact of the latest news has been a weaker dollar, the notable underperformer is the pound, which remains under pressure.

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