Core Durable Goods Bounce Back

 


Core durable goods, which exclude defense and volatile aircraft orders, rose a much more respectable 1.1% in January. That largely reflects the bottoming in global growth and cessation in trade tensions we saw at the end of 2019. Unfortunately, those gains are expected to be derailed by plant closures and supply chain disruptions triggered by the outbreak of the novel coronavirus, now called COVID-19.

Shipments contracted by 0.2% in January. Losses were heavily skewed toward transportation equipment. Both motor vehicles and aircraft shipments fell during the month. Defense shipments were stronger across the board.

Core shipments, which feed directly into business investment, moved up 1.1%. Again, that is prior to the disruptions triggered by COVID-19, which are expected to be significant. Plants in China are still struggling to reopen and get workers out of quarantine after the Lunar New Year break. There are fears of another round of infections once workers return to work.

Separately, real GDP remained unchanged at 2.1% in the fourth quarter. Consumer spending and business investment came in even weaker than initially reported. Trade and inventories offset those losses. Much weaker growth is expected in the first quarter as the disruptions associated with COVID-19 surface. Real GDP growth could easily slip to 1% in the first quarter.

 

 

 

Bottom Line

 

There was the world before COVID-19 and the one after. We will have to wait until well into March before we see the impact in the data from disruptions to the economy.

 

 

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Copyright © 2020 Diane Swonk – All rights reserved.  The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.

 

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