Anyone remember all the huffing and puffing from the establishment press about how third-quarter economic growth was going to be great — so please stop worrying about how weak the past three quarters (annualized rates of 0.1%, 1.1%, and 1.7%, respectively) have been?
Oops. On Friday, the Census Bureau reported that new-home sales dropped over 20% in July to an annual rate of 394,000 from June’s original reading of 497,000, which was itself revised down to 455,000. Today, the bureau revealed that durable goods orders fell sharply in July, bringing about yet another appearance at Bloomberg News of its favorite word during the past five years about the economy, and yet another instance of the stock market’s apparent pleasure with bad news for the rest of us:
Durable-Goods Drop Imperils Outlook for U.S. GDP Pickup
Orders for durable goods dropped in July by the most in almost a year, calling into question the strength of the projected pickup in U.S. growth.
Bookings for goods meant to last at least three years fell 7.3 percent, the first decrease in four months and the biggest since August 2012, the Commerce Department said today in Washington. The retreat was broad-based, with demand excluding the volatile transportation category unexpectedly falling.
The figures signal business investment was off to a slow start in the third quarter just as housing, a mainstay of the expansion, shows signs of cooling. Demand for military gear also declined last month, highlighting the risk that federal budget cuts will continue to slow the world’s biggest economy in the second half of the year.
“Growth will stay moderate,” said Michael Gapen, a senior U.S. economist in New York, at Barclays Plc, who forecast non-transportation orders would drop. “The fiscal drag will last longer.” Barclays cut its tracking estimate for growth this quarter to 1.9 percent from 2.1 percent after the report.
Stocks rose after the report as investors speculated the disappointing data may prompt Federal Reserve policy makers to take more measured steps in reducing how much monetary stimulus they pump into financial markets.
… In a sign production will be sustained, the backlog of orders to factories increased 0.4 percent in July after surging 2.1 percent. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.1 percent last month following a 1.8 percent advance.
“Either orders get cancelled as the corporate sector loses confidence in recovery or the orders get filled as confidence continues to build,” Neil Dutta, head of U.S. economist at Renaissance Macro Research LLC in New York, said in a research note. “We are sticking with the latter.”
Will there ever be a point at which examples of economic underformance in an economy which has consistently underperformed expectations for five years already won’t be described as “unexpected”? Almost definitely: No.
Bloomberg’s Michelle Jamrisko was smart enough to note that orders can be cancelled. Christopher Rugaber at the Associated Press wasn’t. Rugaber is also holding out for a pretty large upward revision to second quarter growth and hasn’t budged on expectations for the second half, despite Barclays growth downgrade:
ORDERS FOR LONG-LASTING US FACTORY GOODS PLUNGE
… Economists at Barclays Capital now predict third-quarter growth at an annual rate of 1.9 percent, down from their previous forecast of 2.1 percent.
… One bright spot was that unfilled orders rose to their highest level since record began in 1992. Those are orders that were placed in previous months but yet to be shipped. The increase suggests output could remain steady in the coming months, despite the weak month of orders in July.
… The economy expanded at just a 1.7 percent annual rate in the April-June quarter. Most economists expect that figure will revised up to a 2.2 percent annual rate, mostly because of the jump in June exports. The government issues its second estimate for second-quarter growth on Thursday.
Most analysts predict growth may pick up to about a 2.5 percent annual rate in the second half of the year.
We’ll see, Chris. As to the second quarter revision, we still have a 0.13-point contribution to growth from increases in farm inventories in the second quarter following a 0.88-point contribution in the first. Considering how puny farm inventories are in the grand scheme, the idea that last quarter’s spike isn’t going the other direction in the second quarter would seem to make it a likely candidate for downward revision.
In the topsy-turvy stock trading world, it would appear than an upward revision to second-quarter GDP will be a reason for the markets to worry about Ben Bernanke sticking to his tapering plans.
Cross-posted at NewsBusters.org.