It's a Hard-Knock Life
JACKSON HOLE, Wyo. -- The figures from the June
release that will show up in the second-quarter
gross domestic product
number round out a business investment profile about as strong as the one that prevailed a month ago.
Business investment was on track to post a 12.8% (nominal) increase when the May durables numbers were released on June 24. Revisions to those figures were included with the release of (fresh) June data today -- shipments of aircraft now show a higher trajectory while shipments of nondefense capital goods excluding aircraft show a lower one -- and the June vehicle sales numbers released at the beginning of this month printed stronger than expected. All told, business investment will post about a 12.1% nominal second-quarter increase. This will show up as a 15%-20% real (inflation-adjusted) gain in the GDP report to be released tomorrow. (See this
column for a recent history of business investment numbers and this
column for details about how the durables release fits into the broader business investment and GDP pictures.)
Anyway. One might reasonably ask two other questions in the wake of this morning's release.
Is the trend in orders for durable goods slowing?
That's a tough case to make. Overall orders have risen during six of the past eight -- and 10 of the last 13 -- months. They're now growing at a 7.6% year-on-year rate; note that they were falling at a 2.3% rate as recently as November. Also, note that the new orders component of the
has been rising since it bottomed in December; it currently stands at its highest level since July 1997.
It is tough to make the case that the trend in orders for durable goods is slowing.
Is the pace of business investment slowing?
Short run? Could be. Long run? Cannot tell.
Shipments of nondefense capital goods excluding aircraft surged during the second quarter, but orders fell outright (by 1.1%). Because orders during one quarter predict (generally) shipments during the next, the business investment portion of the third-quarter GDP number now looks to print relatively weak.
Will that mark the beginning of the end of the investment boom that began (roughly) in 1993? It could, but at this point it might be safest to assume that the pause will go down as nothing more than a wiggle. The third quarter of 1998 and the fourth quarters of both 1997 and 1996 all delivered lackluster orders numbers that had most of the forecasting profession writing investment obituaries, and they all proved wrong (or -- all apologies -- premature).
Will this time be different?
Here's what the
Residential and business fixed investment already have reached such high levels that further gains approaching those experienced recently would imply very rapid growth of the stocks of housing and plant and equipment relative to income trends.
And there you have it.
Straight from the horse's mouth.
A fast-food worker.
A United stewardess.
Any airline gate agent.
A postal-service employee.
A department of motor vehicles employee.