Not a Plunge but a Long, Slow Grind Lower, by Wolf Richter

By SLL’s reckoning, the depression has been going on since the beginning of the century. By Wolf Richter’s reckoning, it’s going to go on a lot longer. From Richter at wolfstreet.com:

Without any real end in sight. That’s what’s different this time.

On the surface, it was the kind of report that has been dogging the US economy for a while.

Orders to US factories for durable goods dropped “unexpectedly” – as the media put it – by 2.2% in May from the prior month, on a seasonally adjusted basis, according to the Commerce Department. “Unexpectedly,” it seems because orders had risen 3.3% in April and 2.0% in March, and the trend henceforth would be upward. But instead, it was a broad-based decline, with some real doozies.

The generally volatile orders for transportation equipment fell 5.6%, as military aircraft orders plunged 34.1%, and as orders for motor vehicles and parts fell 2.8%.

The drop in automobile orders is worrisome. After years of booming, the auto sector set an all-time record last year in terms of total unit sales in the US. It’s a huge sector, making up a big part of manufacturing and about 20% of total retail sales. If it weakens, the economy will lose one of its last strong pillars [read… What Will Sink the US Auto Boom?].

Orders for machinery, primary metals, computers, electronic products, as well as electrical equipment, appliances, & components – they all fell.

And how is business spending doing? When businesses don’t invest and spend, they don’t grow, and the economy has trouble expanding. Business spending is a crucial driver of economic growth. Everyone has been hoping that businesses would open their wallets. Orders for “nondefense capital goods excluding aircraft” – the category that serves as a measure of business spending – were supposed to rise 0.3%.

Instead, they fell 0.7% to $62.4 billion. Down for the third month in a row. And the lowest level since April 2011!

The chart shows this long, slow slump of business spending. Note the V-shaped recovery in business spending after the Financial Crisis, the end of that recovery in March 2012, at $70.1 billion. Which is 12.3% higher than today’s figure! It was followed by 2.5 years of stagnation that ended in September 2014. At which point, the decline set in:

But here’s where “it’s different this time.” This measure of business spending boomed before the prior recessions. Then either just before or during the prior recessions, these orders essentially crashed. Businesses turned off the money spigot. They didn’t dilly-dally around. They went into survival mode and stopped spending. And these orders for core capital goods crashed, both times.

This time, core capital goods orders languished for 2.5 years by bouncing up and down but not going anywhere. Then they started to decline – a long, slow slump of business spending, not a crash!

That’s what’s different this time.

We have seen this pattern in numerous other factors: a slow grind lower, with plenty of upticks in between that give everyone hope that this is finally over and that growth will commence henceforth.

To continue reading: Not a Plunge but a Long, Slow Grind Lower

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