You load 16 tons -- whaddya get?
Not much, that is, when it comes to
durable goods orders
lately. Orders of these items, which refer to things you'd buy that you don't expect to replace in three years, such as washing machines, electrical equipment and automobiles, are expected to fall sharply in January.
More importantly, there could be ongoing softness in the key non-defense capital goods (excluding aircraft) figure, a better signal of the underlying trend for big-ticket items. It ferrets out aircraft orders, which can throw the report completely out of whack by virtue of one or two orders for aircraft, and pulls out the military spending, which is also volatile and doesn't necessarily reflect spending by the rest of the economy.
This figure has dropped three months in a row on a seasonally adjusted basis, and on a year-over-year basis is only up 1.5%, a sharp slowing when compared to the overall trend of about 10% growth in the last several years.
David Greenlaw, chief U.S. fixed income economist at
Morgan Stanley Dean Witter
, wrote this morning that "the underlying pace of order activity is expected to remain quite soft, with the key nondefense capital goods ex aircraft category posting its fourth consecutive decline." By contrast, economists at
Salomon Smith Barney
expect a 4% increase, reversing the recent trend.
Overall, orders for durable goods are expected to decline by 3% for January, according to
, compared with a 2.1% increase in orders in December. That December increase, however, was largely skewed by an outsized 44.7% increase in aircraft orders. That component may drop sharply in January, producing a weak overall figure. (There's no consensus estimate for nondefense capital goods ex-aircraft.) The report is due out tomorrow at 8:30 a.m. EST.
Ongoing weakness in this area of the economy will provide the
Federal Reserve with more ammunition for a potential intermeeting rate cut, which not a few pundits are clamoring should happen sooner, rather than later. There's some other sensitive data due out, including Tuesday's
Consumer Confidence Index
, which is going to be viewed as an important indicator of sentiment, as well as Thursday's release of the
National Association of Purchasing Management's
purchasing managers index
"That more-recent information will play into the actual decision," said Carol Stone, deputy chief economist at
. "If durable orders are weak that will be input into their decision, but more sensitive indicators will have to come in if they ease before" the meeting.
Stone's firm is forecasting a 3.8% drop in overall orders, but she also expects recovery in nondefense capital goods, ex-aircraft.