(Updated from 9:52 a.m. EST)
Signs of economic weakness abound. Today's
durable goods orders for January showed more weakness than expected. The most recent measure of consumer attitudes fell to its lowest level in four-and-a-half years. And sales of new homes were down sharply.
Tell us something we don't know.
The latest data won't materially change the
Federal Reserve's current view about either the manufacturing sector of the economy or consumer attitudes. But the continued decline in demand for goods intended to last at least three years does provide the Fed with more ammunition for a potential rate cut before its next meeting on March 20.
Alan Greenspan delivers the second half of his semiannual monetary policy report, this time to the
House Financial Services Committee
, tomorrow morning. As several writers for
noted recently, the Fed seems to be regarding the stock market more than ever. There is
skepticism about whether or not a rate cut is truly imminent, but this economic data certainly adds fuel to the fire.
Rate cuts, save for the psychological jolt given to the market typically take about six to nine months to work their way into the economy, which argues against a cut to bolster confidence.
Excluding the volatility in transportation orders, today's durable goods figure is about as weak as expected, which is to say the underlying trend in manufacturing is still poor. Durable goods orders dropped 6% in January on a seasonally adjusted basis.
Orders of durable goods, which refer to items like big appliances, electrical equipment and automobiles, were expected to fall only 3%, according to the consensus of economists as polled by
. Excluding transportation orders, orders dipped 0.3%, the second consecutive decline for this group. On a year-over-year basis, durables orders are down 8.1%. Excluding transportation items, they're down 5.6%.
The decline in orders shows that businesses are insecure about future prospects and are therefore cutting back on spending. The report "shows a tentativeness among business planners regarding fixed investments," said Bill Sullivan, senior economist at
Morgan Stanley Dean Witter
. "The big drop is centered in transportation equipment, but other sectors were weak."
The key nondefense capital goods orders, excluding aircraft, turned around after three straight months of weakness. They rose 6.5% in January. However, on a year-over-year basis, these orders are flat when considered against January 2001 and show ongoing weakness in manufacturing. The year-over-year rate of growth in this series has fallen for seven consecutive months from 26.1% in June.
Ongoing softness in this figure is a good measure of the underlying weakness for manufacturing equipment, those machines that make the big-ticket items that consumers and businesses buy. It ferrets out aircraft orders, which can throw the report completely out of whack with even one or two orders for aircraft. It also pulls out military spending, which is also volatile and doesn't necessarily reflect the rest of the economy.
Today's release shows a one-month rebound in spending on industrial equipment, but not on electrical and electronics equipment, which includes technology. Tech has been one of the most important engines of growth and job creation in the last several years. New orders for electronic and electrical equipment decreased 6.2% for the month, following a 0.9% decrease in December. On a year-over-year basis, orders are down 4.5%. Orders for industrial machinery and equipment rose 5.7% and are up 1.8% year-over-year.
"It plays into the notion that the capital spending boom is over," said Sullivan. "Orders peaked months ago -- it's a complete loss of momentum."
Meanwhile, consumer confidence is on the wane, as this morning's
Consumer Confidence Index from the Conference Board shows. The index fell to 106.8 in February from 115.7 in January, its fifth consecutive decline. Conference Board officials did not characterize the figure as indicative of recession, but rather of a severe economic downturn.
The survey, a sample of 5,000 U.S. households, has shown an increase of pessimism over the past few months as economic growth has waned, layoffs have increased, and the stock market has dropped sharply. There are two significant measures in this report, the current index that questions consumers about their current situation and the future index, which is a broader question about how people feel about how economic conditions will be in six months.
The current index fell to 164.1 from 170.4, while the future index dropped to 68.7 from 79.3.
The current index has fallen less sharply from its peak than the future index, and there's considerable debate as to which figure is more important. "The current conditions question is more relevant question, personally," said David Orr, chief capital markets economist at
. "I think there's a disconnect between the way people are perceiving the overall economy and perceiving their own situation."
On the housing front, new homes sales fell to a seasonally adjusted annual rate of 921,000 in January, according to the Census Bureau, a drop of 11% from the 1.034 million rate in December.
With little corporate news to give it direction in the short term, the market now awaits Greenspan's testimony and the
National Association of Purchasing Management's
purchasing managers index, out Thursday.