US October Durable Goods Orders Drop 8.3%

The US economy continues to slow. While the Fed and the financial markets keep their eyes on contained inflation, less is being spent on fewer goods. The GDP growth rates have declined since January on a quarterly basis, and now, the Commerce Department says durable goods orders (those big ticket items that are supposed to last more than 3 years, e.g. refrigerators) dropped 8.3% in October, surprising the market.

Reuters reported that analysts it had polled “had been expecting durables orders to drop 4.6 percent overall on a decline in aircraft orders for the month, but to rise 0.2 percent when transportation orders were stripped out.” The 8.3% drop stunned many and almost wiped out September’s 8.7% gain. Even with transportation removed from the picture, there was no rise – the drop ex transportation was 1.7%.

This is a particularly troubling result because the drop is the biggest in six years. Despite all the economic trouble the US has seen since 2000, durable goods held up better than this. CNN reported, “Computers and electronic orders fell 10.2 percent, with orders specifically for computers and related products falling 25.6 percent. New orders for non-defense aircraft also took a big hit, falling 44.5 percent.” Also, “excluding defense items, new orders decreased 6.4 percent.”

This isn’t good news for the US economy, but the world economy as a whole may not suffer a recession. Jean-Philippe Cotis, chief economist at the Organization for Economic Cooperation and Development, suggested, “Rather than a major slowdown, what the world economy may be facing is a rebalancing of growth across OECD regions.” This is nothing like 2000 he maintains. “Is history repeating itself? In principle, no. What we see is a slowdown, not a recession. We’re getting the rebalancing we've been awaiting for so long, and it’s happening gradually rather than abruptly.”

If he’s right, the growth outside the US will keep the world economy moving ahead, but at a slower pace. America will drag on other economies to a degree. OECD experts say growth among its (largely wealthy) member states will be around 2.5% next year, down from 3.2% this year, but rising in 2008. The US should see 2.4% and 2.7% growth for 2007 and 2008 respectively according to the OECD. So, it probably won’t be a recession (2 straight quarters of negative economic growth), but the US will grow slower than it has been. That creates long-term problems for a debt ridden economy.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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