June 25, 2003

A Disappointment

A surprising disappointment:

Durable goods orders down 0.3% in May - Jun. 25, 2003: U.S. durable goods orders sank 0.3 percent last month -- in contrast to the expectations of private economists that they would rise 0.8 percent. The data from the Commerce Department showed April orders plunged 2.4 percent, revised down from an earlier reported 2.3 percent drop. The report showed broad-based weakness in demand for big-ticket items, with categories such as cars, computers and machinery showing declines. Excluding the volatile transportation sector, orders edged up 0.2 percent, a much weaker showing than the 1 percent gain projected by economists in a Reuters survey...

Posted by DeLong at June 25, 2003 07:20 AM | TrackBack

Comments

Economists' expectations unexpectedly not met. I never would have expected that.

Posted by: Fabio on June 25, 2003 08:31 AM

Does anyone have any data on how plausible the argument that increasing durability and reliability of equipment is affecting long-term durable-goods orders? For example, cars today are expected to last far longer than they were, say, 30 years ago. Computers are, in my experience, more "reliable" in the sense that they are obsolete less quickly, than they were 10 years ago. Could adapting to this new reality explain some of the drop in durable goods - that the replacement cycle may have slowed?

I know that what I am suggesting should be a long-term trend, but people are much more likely to rethink decision making in a recession than in a boom - up until a couple of years ago firms may have just replaced on schedule, now they are considering need more closely, and changing the schedule.

Posted by: rvman on June 25, 2003 08:35 AM

The new line of Apple has high speed for video conferencing. IF the video takes off, then computer sales could take off. Otherwise why would anyone need to upgrade?

As the software engineers like to say,

"If we didn't bring your processor to its knees, no one would ever upgrade."

Posted by: bakho on June 25, 2003 08:38 AM

Does anyone have any data on how plausible the argument that increasing durability and reliability of equipment is affecting long-term durable-goods orders? For example, cars today are expected to last far longer than they were, say, 30 years ago. Computers are, in my experience, more "reliable" in the sense that they are obsolete less quickly, than they were 10 years ago. Could adapting to this new reality explain some of the drop in durable goods - that the replacement cycle may have slowed?

I know that what I am suggesting should be a long-term trend, but people are much more likely to rethink decision making in a recession than in a boom - up until a couple of years ago firms may have just replaced on schedule, now they are considering need more closely, and changing the schedule.

Posted by: rvman on June 25, 2003 08:40 AM

The drop in durable goods that is the subject of Commerce Dept data is much more short term than now vs 30 ya.

Computers still go for about 3 years before they no longer have enough processor/memory to run the latest. Reliability is not a major computer issue. With corporations still downsizing the workforce, this means fewer workers needing new computers. If workforce expands, then new employees will need a new computer.

Cars today vs 30 years ago- As in Ford Pinto and Chevy Vega? You might want to check a 1998 paper on car longevity.

http://www.rff.org/CFDOCS/disc_papers/PDF_files/9820.pdf

The argument is not that reliabilty is better but that repair is less expensive.

Posted by: bakho on June 25, 2003 09:43 AM

The data clearly shows there is no recession. Oh, wait! I thought I was posting in the "It Depends On What A Recession Is" thread. Nevermind.

Posted by: Dan on June 25, 2003 10:12 AM

Yes, there is no recession. There is a slow growth period that will persist unless consumer demand sharply increases so that industry will have to add meaningfully to employment. I do not know what would induce industry to add meaningfully to investment unless consumer demdand increases. But, low interest rates have kept consumer demand high these last 2 years, and I am doubtful there will be another spurt. Waiting for industry spending to increase to replace capital equipment, will make for a long further wait.

Posted by: anne on June 25, 2003 10:22 AM

The Fed is dropping the funds rates to levels that make sense only if there is deflation; this causes anyone with money to hold the money changing the supply curve by changing velocity, and anyone without money is going avoid borrowing to buy goods that will cost less in a few months, so this is changing the demand curve.

If the Fed instead said "we are switching to a policy of expanding the money supply at the rate of 1993 which approximates the current state of the economy, and economy expanding; as the market adjusts to the new environment, the interest rates may vary but there will be no deflation or inflation."

Ooops, that's the monetarist analysis.

I guess what is needed are more tax cuts - hey why not eliminate all income and corporate taxes and keep only the "payroll" taxes to punish the poor for being poor.

Posted by: michael pettengill on June 25, 2003 10:02 PM
Post a comment