Now 'n' Laters

JACKSON HOLE, Wyo. -- The February

durable goods

report released Wednesday revealed that shipments of nondefense capital goods are set to fall for the first time on a quarterly basis since the third quarter of 1995.

The nondefense capital goods shipments series is important because it hints at what kind of performance we can expect business investment to show when first-quarter

gross domestic product

numbers are released April 30. Said shipments series surged 16.8% during the fourth quarter of 1998; business investment contributed a whopping 1.46 of the 6.1 percentage points by which GDP grew during that quarter. That contribution went down as the third biggest quarterly investment contribution in four years.

Shipments of nondefense capital goods fell 1.9% in January and another 0.5% last month, so they will post an annualized 7.1% decrease during the current quarter, even if they rise 1.1% in March. This suggests that business investment might subtract from quarterly GDP growth for only the second time since 1995.

(Note that this is not a given. The shipments series is a nominal series, not a "real" one; that is to say, it's not adjusted for inflation. Recall that a real variable equals its nominal counterpart divided by the appropriate price level. Then note that if the prices and shipments of business investment goods both fall, but prices fall faster, then shipments will actually show an increase on a real basis. This is the basis on which GDP numbers are commonly reported.)

Will such a pattern repeat during the second quarter? It's unlikely. Why? Because orders for nondefense capital goods are on track to rise a booming 24.4% during the current quarter. Just as a huge 16.1% decrease in orders during the fourth quarter promised a weak shipments showing during the first, a big 24.4% increase in orders during the first quarter promises a strong shipments showing during the second.

Orders now turn into shipments later. Keep it in mind.

Etherised Upon a Table

Your narrator is more than a bit confounded as to why some folks are (apparently) giving serious consideration to the possibility that the

Federal Open Market Committee

will announce a move to a tightening bias when it meets

meets next Thursday.

Here it is worth pointing out one of the most important distinctions in economics.


economics is the economics of what


. It is objective; it concerns fact. Example: A 6% sales tax (as we know it in this country) is regressive. It is unambiguously tougher on those at the bottom of the income distribution than it is on those at the top.


economics is the economics of what

should be

. It is subjective; it concerns opinion. Example: A sales tax should be no tougher on those at the bottom of the income distribution than it is on those at the top.

Surely you see where this is going.

Some people think the


should get tougher next week. Others think the Fed should get easier. But positive economics says that the Fed isn't likely to announce anything -- save that there is nothing to announce.

This Fed is one of the sissiest Feds in the history of sissy Feds. (On a related score, see this superb Christopher Byron

piece.) The Fed shows no faith at all in its forecasts and no longer looks more than a month into the future. For umpteen months, its members have told us ad nauseam that the upside and downside risks to the economy are precisely balanced and that signs of price increases are not to be found anywhere. They swear up and down that they do not target a specific level of share prices, and some of them are dropping New Era comments like horses drop dung.

This lot is suddenly going to stand up and announce to the world that it is now ready to tighten?