Wednesday, September 26, 2007

Durable goods orders plummet

This is off MSNBC News:

WASHINGTON - Demand for big-ticket manufactured goods plunged in August by the largest amount in seven months, with widespread weakness signaling a slowdown in the United States' industrial sector.

The Commerce Department reported Wednesday that orders for durable goods, everything from commercial jetliners to home appliances, fell by 4.9 percent in August, the biggest decline since a 6.1 percent fall in January.

It was far larger than the 3.5 percent drop that economists had been expecting and resulted from across-the-board decreases in a number of categories. The concern is that the steep downturn in housing and turbulence in financial markets could start to affect the economy more broadly, raising the risks of a full-blown recession.


Of particular concern, orders in the category considered a proxy for business investment plans edged down by 0.7 percent in August, the second decline in the past three months. Business equipment spending has been one of the bright spots for the economy this year.

I think we're seeing the second leg of this weakened U.S. economy starting to get knocked down. The first leg, of course, was the U.S. housing bubble, where everyone were jumping into over-priced houses using EZ-financing deals and dreaming that their home values would continue to increase by double-digits. It is this leg that we saw the worst of predatory lending, the increased use of adjustable rate mortgages, no money down lending, free credit, and the madness of Wall Street pushing these high-risk loans into supposedly safe mortgage-backed securities on investors. The housing bubble collapsed, resulting in a slowdown of new home construction to a 12-year low, home foreclosures soaring, home sales and prices falling, and fears that the housing mess could push the U.S. into a recession. Consumers could not afford to pay the rapidly increasing home prices with stagnating incomes. So it was only a matter of time before this bubble would collapse. And I'm thinking that this housing mess will start to hit consumer spending. Consumer confidence has fallen to a two-year low of 99.8 in September, down from 1.5.6 in August. If consumer confidence has fallen this far, will consumer spending be next?

So what does all this have to do with durable goods and a recession? The housing bubble may have been the first leg this U.S. economy has been standing on, but after the housing crash, it has been business spending and investment that has been keeping this economy afloat for the year. But with the bad new continuing to come out on the housing mess, are businesses starting to realize just how bad this is, and are cutting back on their spending and investment in anticipation of a recession? According to the MSNBC story:

Many analysts believe the overall economy, after racing ahead at a 4 percent annual rate in the spring, slowed in the summer to growth in the gross domestic product of around 2.5 percent with the continued troubles in housing and the spreading credit crunch lowering growth estimates to 2 percent or less in the final three months of the year. Some economists are putting the chances of a recession as high as 50-50.

I've been wondering when the recession was going to hit the U.S., mainly as a result of the accumulated U.S. debt, and the Bush administration's insistence of both continued spending on the Iraq war and the tax cuts to the rich. But with the housing market crash and the durable goods orders plummeting to add to the Bush war, tax cuts to the rich, and the huge U.S. debt, I'm thinking that the recession will finally hit the U.S. in the beginning of 2008. And I fear it is going to be a very deep recession.

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