By Marc Chandler
Today’s durable goods orders data lends credence to our projection of fairly robust Q3 US GDP after the dismal 0.8% expansion in H1. The durable goods report is the third important piece of data that should encourage economists to look for something close to what is regarded as trend growth in the US (2.5%-3.0%). The sharp rise in July personal consumption expenditures and the smaller real trade deficit were the other two piece.
Durable goods shipments excluding defense and aircraft, are a useful proxy for capital goods spending in (nominal) GDP calculations. These shipment roses 2.8% in August (the strongest since March), following a 0.4% rise in July. They have risen at an annualized pace of a little more than 16% over the past three months, up from 11.2% in Q2 and 3.9% in Q1.
Reports indicating that Corporate America balance sheets are flush has given rise in some quarters to arguments that they are hoarding cash. And yet business investment, not in plant, but equipment remains a bright spot in the economy. Capital goods orders rose 4.2%. Business investment in equipment and software appears to be running at around double the 7.8% pace seen in Q2. Consistent with this was yesterday’s announcement by IBM and Intel to invest $4.4 bln over the next four years to create a new facility in New York for the next generation computer chip.
Tomorrow the US will report revisions to Q2 GDP. It is expected to be revised from 1.0% to 1.2%. On Friday the August income and consumption will be reported. There is little chance that consumption expenditures can keep pace with the 0.8% rise in July. However, even with the consensus 0.2% rise, the resilience of the consumer will be still be clear after the exceptionally poor Q2 and little improvement in terms of employment and earnings.
Next week’s data include the ISMs (still above 50), auto sales (potential for upside surprise) and of course, the highlight, the national jobs report, where the early call is for the private sector to have added another 100k to the payrolls, after a disappointing 17k in August. The US data will stand in stark contrast to the euro zone data, where it will be recalled the flash PMI composite reading below 50 warns of continued economic weakness.