With the pressure on for the economy to deliver a robust rebound in the current quarter just to maintain even the semblance of hope for 2014, the latest durable and capital goods estimates are unwelcome. Various sentiment surveys show extremely robust index levels, but such mathematical constructions tell us absolutely nothing about the absolutel level of attainment, measuring only relative changes. The most we can get from a sentiment survey is that the current three months is not as bad as the prior three months – an exceedingly low standard. While there has been a bounce in economic accounts that is not the same as a return to growth. Getting less worse is a wholly different situation than growing robustly. The durable goods figures are exactly that, only the “weather” rebound was both underwhelming in comparison to what “growth” looks like and already appearing exhausted. That would suggest not a true bounce at all, but rather a pretty typical pattern of volatility. ABOOK June 2014 Durable Goods ex Trans The growth rate in April was not enough even to match last year’s inventory-led surge. As such, the average got nowhere near what might be consistent with 4.5% GDP growth, and is falling already with another month to go in the quarter. The same is also apparent of capital goods too. ABOOK June 2014 Durable Goods Cap Goods Nothing here suggests a robust recovery in anything, but rather a continuation of the replacement rate cycle typical of the 21st century recession cycle. After the major slowdown occurs (in 2007 before the Great Recession, and in 2012) it looks as if businesses respond carefully at first only engaging in the bare essentials. That is far from an investment in productive capacity that carries the economy forward (and shows up with actual hiring and wages). Whatever weather-related effects took place in the winter, they seem to have been minimal afterward. In fact, you can make the case that nothing much has changed on this downward side of the inventory/replacement mini-cycle. ABOOK June 2014 Durable Goods HistoryABOOK June 2014 Durable Goods Cap Goods 2008 Comp That would mean that the economy isn’t looking all that much better than the first quarter’s disaster. I don’t mean to preclude a rebound or positive GDP for the second quarter, only that such a result isn’t the same as an actual recovery. In fact, you only need to go back to 2008 to see this, as 2nd quarter 2008 GDP was enough to convince the FOMC and orthodox economists of the same trend they see now. However, recessions are a process and only take a linear progression once they become entrenched (which is why psychology remains of the utmost importance at this very moment to the orthodoxy and policymakers – they are convinced that you must be convinced that the growth trajectory remains intact and credible). In the current “cycle”, that has meant a much gentler downward slope, but that negative inclination is apparent across nearly every economic account, save the straightened Establishment Survey.

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