BIG PICTURE: Durables Data Suggest Slight 4Q GDP Growth
28 Jan 15:38
By John McAuley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The report on durable goods in December contained a lot
of mixed messages, but leaves fourth quarter growth estimates looking for a
small plus.
To be sure, the headline number, which showed new orders only rose by 0.2%
after a revised decline of 1.3% in November, had little impact in either the
Treasury or foreign exchange markets just after the release at 8:30 a.m. EST
on Tuesday. The data painted another picture of a weak capital spending climate
and in that sense didn't alter existing views on the economy.
Orders for durable goods excluding transportation - accounting for more than
70% of all durable orders - rose by 1.1%, led by a 12.1% increase in orders
for computers and related products. Transport equipment was pulled down by a
9.1% decrease in defense aircraft and a 4.5% decline in the much more important
motor vehicle component, which partly offset a a 21.4% increase in nondefense
aircraft.
But two other components have far greater relevance to the advance estimate
for gross domestic product in the fourth quarter. And here there was cause for
some - albeit mild - optimism ahead of the release of fourth quarter GDP data
on Thursday.
The first of these is the shipments of nondefense capital goods excluding
aircraft, used by the Commerce Department to estimate a large share of capital
spending on equipment. That component declined by 0.9% in December after no
net change from September through November. As a result, capital spending
looks to have resumed its decline in the fourth quarter.
But the second input to the GDP estimate in these data is the 0.9% rise in
inventories of durable goods. An increase in these inventories during December
is likely to offset some, if not all, of the negative effect of lower capital
spending.
"The lower than expected shipments in nondefense capital goods will trim our
estimate for investment spending, but the inventory figure would add nearly
half a percentage point to our GDP estimate by itself," said Lou Crandall,
chief economist at Wrightson ICAP, in New York.
Of course, this doesn't point to a robust inventory-building cycle. The data
suggest that restocking of some inventory may help keep GDP for the fourth
quarter in the black, but the report also clearly shows that companies still
aren't ordering big ticket items, a persistent drag on the economy.
Indeed, despite the inventory rebound, Crandall is sticking with his estimate
of a 1.2% annual rate of growth for GDP in the fourth quarter. "I think we're
as likely to see a 2.5% increase as an unchanged GDP after you deal with all
the pluses and minuses."
One wrinkle that distinguishes Crandall's forecast from many others is his
belief that some of the weakness in the overall December report may simply
reflect the surge in imports in November of foreign-made big ticket items. But
other economists saw greater potential for a weaker result.
"The possibility of a negative number has increased," said John Silvia, chief
economist at Wachovia Securities in Charlotte, N.C.
Silvia is sticking with his estimate of a 0.5% increase in fourth quarter
GDP, but says that it's touch and go for the Commerce Department. "An inventory
increase is probably enough to keep GDP in positive territory, but final sales
probably declined and that's bad," he said.
The weakness in final sales - GDP less the change in inventories - is a more
basic concern than whether or not the headline growth number can eke out a
slight positive. Final sales are the source of momentum for the economy going
forward.
In fact, Silvia believes that this stagnation could linger as long as the
uncertainty over Iraq remains a force in business confidence. `The war needs to
be settled," he said. "Businesses have put hiring and business investment on
hold until the war/terrorism risk has passed," he said.
Even economists who see no growth in the fourth quarter, however, found some
reason to look for gains for the first quarter of this year.
Dave Greenlaw, senior economist at Morgan Stanley in New York, held to his
forecast of zero growth in the fourth quarter, but took some comfort that "the
downside surprise in December was in the motor vehicle category, where sales
surged." He said this suggests that there is some strength to come from motor
vehicles in January.
Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio, notes
that the inventory increase was "unintended, but not entirely unwelcome. In the
context of a generally tight inventory situation, and improving business
prospects for 2003, I would judge that some of the increase is desirable."
-By John McAuley, Dow Jones Newswire, 201-938-4425; john.mcauley@dowjones.com
(END) Dow Jones Newswires
01-28-03 1538ET |
