Resilient Durables Does Not A Durable Recovery Make

You can put your own spin on December’s durable goods numbers.

The headline print, a 0.2% rise, was a big miss. The market was looking for 1%.

On the face of it, that could conceivably be interpreted as a sign that strength in demand for the kinds of “stuff” consumers have been prone to purchasing post-pandemic is abating. That, in turn, could be read as a bad sign for manufacturing. December’s rise is just a blip — you can see it in red if you squint (figure below).

However, the pessimistic narrative might not be the best one in this case. Core capital goods orders rose again in December.

The ex-aircraft print showed a 0.6% rise on top of an upwardly-revised 1% gain in November.

That’s much more encouraging, although, as you can see from the visual, the pace of gains is decelerating.

One ongoing theme in the recovery is a bifurcation in the US economy. Manufacturing has generally come in better than expected, while the services sector suffers from rolling lockdowns and the ongoing effort to contain the virus by curtailing activity in high-contact sectors.

This will continue to be a point of concern. There are only so many “durables” that businesses (let alone individual consumers) can buy. The very nature of the term “durable” means the purchases won’t be frequent.

The bottom line is that either the services sector comes back as a result of vaccine rollout coupled with common sense measures businesses and patrons can take to consume services without getting sick, or else the consumption/services-driven US economy will struggle to reclaim pre-pandemic levels of overall output.

It’s just that simple.

Of course, over the longer-term, it wouldn’t be the worst thing in the world for the downtrodden middle class if American manufacturing were to make a sustainable comeback, shifting the economic mix to reflect a larger (albeit still relatively small) contribution from the kinds of industries that once provided good, high-paying jobs.

The challenge is retooling (figuratively and literally) American industry to produce the kinds of goods the world will need going forward — namely, products that facilitate sustainable energy and the materials necessary to rebuild the country’s infrastructure.


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