skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.


Capital Goods Orders Dip Slightly, but Still Show a Rebounding Trend

The Census Bureau announced today that new orders for durable goods rose 0.2% in August. The more reliable gauge is new orders for durables excluding (ex) transportation equipment, and that measure showed a 0.5% increase, offsetting a similarly sized decline in July. Within this aggregate, new orders for capital equipment other than aircraft showed a -0.2% decline.

So, neither of the latter two indicators showed ringing gains in the summer, but both look to be maintaining a modest uptrend over the last four months, after having declined fairly steadily in the early months of 2019. Thus, durables orders ex transportation equipment show a +3.3% annualized rate of growth over the four months May 2019 through August 2019, compared to a -2.5% rate of decline over the preceding six months. Similarly, as shown in the chart here, capital goods orders ex aircraft have increased on net at a +2.9% annualized rate over the last four months, after having declined at a -3.6% rate in the preceding six months.

Neither one of these swings suggests an earthshaking rebound in the factory sector’s fortunes. However, together they do indicate a much better picture than what the "soft data," such as the Institute for Supply Management (ISM) Manufacturing Index, have been suggesting.

That is, the ISM index dropped below 50% in August, after having been above 50% over the first seven months of 2019. This movement suggested to some a sudden decline in factory activity in August.

In contrast, both durables orders in general and capital goods orders in particular had been declining since the summer of 2018 and, again, have been showing some rebound since April 2019. The inference for these measures is that factory softening began almost a year ago and has been moderating—or reversing recently. Similar readings have been given by other "hard data" indicators of manufacturing. Thus, factory production jobs, factory production hours worked, and industrial production by factories have all increased on net over the last four months after having declined steadily in the first four months of 2019.

In other words, rather than the recent weakening indicated by the soft data, the hard data show a softening that began as much as a year ago, but that appears to have turned the corner in recent months. The weakness in the soft data was a big part of the recession stories floating around early this month. Better economic data over the course of this month have quashed those recession fears somewhat, and we believe this is rightly so. Again, the yearlong softening in manufacturing has been a major factor in slowing overall economic growth this year from the headier pace of 2017-18. However, we have always contended that growth, while slower, was not weak nor weakening toward a recession pace. The modest but clear improvement in hard data for the manufacturing sector supports our position.

Orders for Nondefense Capital Goods
Orders for Nondefense Capital Goods
Source: Census Bureau. As of 31 Aug 19

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.