Submitted by Jeffrey Snider – Alhambra Investment Partners
The “other” part to the GDP euphoria of the tax-like increase in non-discretionary spending was the apparent increase in business optimism. The latest durable goods figures, which includes capital goods, show that like the PCE revisions for health insurance spending there were relative changes that may account for better “investment” results in Q3. However, October and November more than suggest another temporary mid-year expansion seriously waning.
There is an almost identical mini-cycle playing out in 2014 in reflection of 2013. While shipments had been better this year (until October), the mid-year peaks are prominent in relation to likely inventory builds that are not satisfied as expected. In other words, production and productive investment rise (recall that winter weather was blamed for Q1 2013 as Q1 2014) in anticipation of that elusive “second half” economic takeoff only to be disappointed yet again. Capital goods orders fell essentially to zero in November after hitting 10% in September.