A large drop in June's durable goods orders was largely brushed off by economists Thursday who said the data are simply too volatile to draw any meaningful conclusions.
Orders for new durable goods plunged 3.8% last month, their biggest drop in seven months, according to the Commerce Department. Economists were looking for a 0.5% increase.
"It was a weak report, there's no question, but it does follow some strong reports," said Josh Feinman, chief economist at Deutsche Asset Management. "This series is notoriously volatile and subject to revision."
Durable goods rose a revised 0.6% in May after originally being reported up 0.9%. Orders in April climbed 1.5%. So far this year, new orders are down 3% from the same period last year.
Drew Matus, an economist at Lehman Brothers, said there is still "no hard evidence" that capital spending has fallen as much as the data for June suggest.
"It's something to watch, but it's not something to be overly concerned about right now," he said.
Weak Across the Board
One big drag on the June data was a 47% drop in orders for new aircraft, but declines were broad-based with weakness in orders for computers, machinery, automobiles and communications equipment. Excluding transportation equipment, orders fell 3.1% last month.
Shipments of durable goods also fell in June by 1.4% while inventories of big-ticket items dropped 0.5%.
Some observers, like Merrill Lynch economist Stan Shipley, worry that the deterioration in the stock market has started seeping into the overall economy and is forcing businesses to cut back on spending. While the most serious declines have occurred in July, the market has been on a downward path since mid-March.
"If you have a choice between beating earnings numbers or investing in a new plant, you're probably going to beat numbers, there is some concern about seepage but we can't take this data seriously," Matus said.
What he is taking seriously, however, is the fall in first-time jobless claims. The Labor Department said claims fell 21,000 last week to 362,000, the lowest reading in 17 months. Although this, too, can be a volatile report, Matus said the trend has been positive for some time.
"This shows that the labor market is stabilizing, and in the upcoming employment report, we should see an unchanged reading or even a slight decrease," he said.
Feinman agrees, saying that the jobless numbers were "surprisingly good" and seem to be "trending down." The four-week moving average, which smoothes out weekly fluctuations, was down 7,500 from the previous week to a 16-month low of 384,500.
In a separate report, the employment cost index rose 1% in the second quarter, slightly higher than the 0.8% increase expected by economists. "Compensation lags the business cycle, so we expect it to remain well-behaved for the next few quarters," Shipley said.
As for the housing data released Thursday, economists weren't overly concerned. The National Association of Realtors said existing-home sales fell about 12% in June to 5.07 million. But the Commerce Department estimated that sales of new homes rose about 0.5% last month to a record 1.001 million annual pace. May's sales were revised down to 996,000 from 1.03 million.
"These things are still running at a strong pace," Matus said. "The data show the economy is in the midst of a recovery."