Courtesy of Lee Adler of the Wall Street Examiner
Media reports today featured the strength in core durable goods orders and downplayed the weakness in the headline number. The core number excludes transportation equipment, particularly aircraft, for which orders are extremely volatile. Both numbers are seasonally adjusted and therefore do not represent the actual performance of the measure.
Dow Jones’s take today was typical. “Bookings for big-ticket U.S. goods slumped in January because of weaker demand for aircraft, but orders were generally strong elsewhere in the economy and suggested that business investment is picking up.”
Since the media wanted to focus on the “good news” I was excited to chart the core durable goods orders so that I could see that good news for myself. Rather than the headline seasonally adjusted fictional number, I like to look at the actual not seasonally adjusted data as adjusted for inflation to get a picture of the trend of the actual unit volume of orders over time.
Yep, it sure is bullish.
Core Durable Goods Orders – Click to enlarge
I do admit that the year to year trend has returned modestly to the plus side, which is better than you could say for 6 months ago in July, but the January level is no better than the middle of the flat trend over the past 3 years.
Durables include auto sales, and the Fed has been vocal in taking credit for the rebound in that. It sure isn’t showing up in terms of an impact on manufacturing in general.
The stock market doesn’t care. It’s not because durable goods manufacturing is only 5% of the US economy and is therefore too small to matter. The fact is that the stock market is a first order impact of Fed policy. Stocks rise because the Fed pumps money into the stock market via securities purchases from Primary Dealers. It just so happens that they also happen to be the world’s largest market makers in stocks, not just Treasuries and MBS. The Fed cashes out the dealers, and they do their thing. They put that cash to work where they think it’s gonna get the love, and that’s often the stock market. The Fed just prays that rising stock prices and other effects of financial repression (ZIRP) will trickle down into economic activity.
The economic data evidence shows that the policy has failed. Wishing and hoping and pretending to show cause and effect between Fed policy and strong performance in certain aspects of economic activity just doesn’t cut it. Charts like the one above, or the one I posted earlier on new house sales and housing starts don’t lie. Fed policy has failed miserably to stimulate real economic growth. Economic activity is still a lot closer to the lows of the past decade than to the highs. I would argue that that is because the costs of Fed policy have crushed any would-be positive effects.
While the Fed may want to take credit for rebounds in auto sales and housing, the fact is that its policies are not boosting manufacturing and have barely gotten housing off the floor while giving those industries massive subsidies that impose very real costs elsewhere. Those costs are the lost income that investors and depositors suffer, as well as the effects of misallocation of capital which are less clear in the short run. The benefits of ZIRP haven’t seemed to have trickled out into the broader economy at all. Perhaps if people had been able to earn 4% on their savings, they would have spent more on other goods and services? But Bernanke never talks about the costs or the downside of its policies. He only wants to take credit for what appears to work, and even those associations are full of holes upon closer examination.
Meanwhile the mainstream media plays along, sleepwalking in lockstep in presenting the Bernanke point of view while ignoring the facts. Professional journalists have often failed miserably to examine those facts and present the truth in their professional offerings under their paymasters’ mastheads. It’s one reason why economic bloggers and alternative media have become such a big part of the financial landscape today.
Media outlets like the Wall Street Journal, New York Times, and CNBC simply can’t be trusted to present the truth on a consistent basis. It’s hit or miss. Every once in a while a reporter will do an outstanding job, and there are a few, like Gretchen Morgensen, Floyd Norris, and Pedro da Costa who are consistently outstanding. For the most part, when you read the financial news you must take everything you see with a grain of salt, especially if all the headlines and blurbs say pretty much the same thing as they did today with the durable goods news.
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