The month-over-month change in seasonally adjusted durable goods orders appeared to, once again, beat expectations. Absent cyclical and seasonal adjustments, however, the numbers tell a different story. For an explanation of seasonal factors and the vain pursuit of precision, see our post here.

Year-over-year, the trend change in 2012 for durable goods mirrors other data we have seen in other reports (including the advance GDP report for Q3). What has become clear is that there is a remarkable difference not just between 2010-11 and 2012, but also between the first half of 2012 and the second. Starting with overall durable goods shipments (ex aircraft), in the first five months of 2012 the year-over-year trend appears stable and unremarkable.

Beginning in early summer, that stable trend clearly changes.

If we back up and look at the trend in new orders, the summertime weakness in shipments is foreshadowed by an earlier trend change in durable goods new orders – not a collapse in new orders but a softening trend.

What is ominous about that first half is that it continued to get weaker right through the summertime. There has been no bounce in new orders, not even in the months under the new QE 3 regime. Instead, September and October 2012 new orders levels are now showing contraction from their respective months in 2011. New orders have gone from softening growth to outright contraction (something that does not show up in the seasonally/cyclically adjusted month-to-month comps).

Digging further into the data, one of the most important leading indications for the overall economy is capital goods. Here we see the same pattern, shipments stable in H1 only to suffer into summer (with only a small bounce in October).

Again, we see capital goods orders change their trend much sooner in the calendar, in March 2012, leading the inflection in shipments by around three months.

And just like overall durable goods new orders, there has been no bounce. What is truly bothersome here is that capital goods orders are not just experiencing a modest correction. Since July the year-over-year drop has been continuously large (-7.4%, -5.4%, -9.6%, and -7.0%).

The theme for 2012 has been that something has changed in the wider economy. There might be an impulse to link this to the looming fiscal cliff, but I think the timing of orders and then shipments coincides with other economic factors (particularly household income). The lack of bounce in new orders and the serious contraction in capital goods orders portends a worsening environment for shipments in the coming months. That itself is a stark departure from the economic pattern of 2010 & 2011 which saw rising year end numbers (see below).

What we are seeking from this data is not some faux precision in parsing exact month-to-month changes, but rather corroborating trends and inflections with other data points and series.