Durables Signal Recession

Orders for durable goods fell 1.7% in February following a 4.7% drop in January. The drop was 2.4 percentage points weaker than expected.

Excluding transportation, durable goods orders fell 2.6% following a 1% decline in January. The drop was 2.3 percentage points weaker than expected.

Details of the report point to a decrease in capital spending in the current quarter. In particular, shipments of non-defense capital-goods orders excluding aircraft fell 2.1% in February, the most since January 2007 and the second-most since August 2003.

It is shipments of goods that are plugged into the calculation for GDP, not orders, raising risks for a decline in the capital-spending portion of GDP for the current quarter, data for which will be released on April 30.

Shipments of all capital goods fell 4.5%, which was the most since April 2001 and the fifth largest since 1991. Orders for machinery fell 13.3%, the most since the data series began in 1992.

By signaling a decline in business spending, which has declined in each of the past eight recessions, today's report is consistent with economic recession.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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