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US Nov Durable Goods: A Bright Spot for the Economy?

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Later today we have the last bit of major data coming out from the US before the end of the year. After that, the markets are left to their own devices, and it is likely to mark the last day of major trading.

Tomorrow, the US markets are closed for the Christmas holiday. The week after is not forecast to have any major events. So, any change in trends from data for the rest of the year will depend on the data we get later.

At the same time, we get two major guides of economic development: Durable Goods Orders and Personal Spending. The latter in particular is indicative of the appetite of consumers during the period when people typically do the most shopping ahead of the holidays.

So, there could be a lot riding on the data.

What to look out for

Durable Goods, on the other hand, are useful for understanding where businesses think things are going over the next few years. They represent large, long-term capital equipment commitments, such as buying new factory machinery, new airplanes, new trucks.

However, we need to be slightly more cautious with this data, as it measures a period when the latest concerns over omicron had just started. Therefore, there might be a little bit of a distortion.

Secondly, with all the issues around supply chains, it’s logical that US companies would be increasing their spending on transportation. Truck orders are increasing, and so are other forms of freight transportation.

So, the market is likely to be looking at the Durable Orders Ex Transportation figure as the best guide to understand how optimistic businesses are.

What to expect

Analysts project the November Durable Goods to have grown by 1.6%, compared to -0.5% in October. Normally that would be a strong sign of a swing in optimism. Nonetheless, that’s not the case if we dig a little deeper.

In addition, they anticipate the November Durable Goods Ex Transportation to have grown at 0.6% compared to 0.5% one month earlier. That’s an increase in the pace, but certainly not as dramatic.

It’s also indicative of how much influence transportation is having on businesses and government core spending. In other words, the supply chain issues are far from resolved.

What are the consumers up to?

The November Personal Income may increase by 0.4%, a slowing of the pace from the prior month at 0.6%. On an annual basis, that’s “just” 4.8%, or well below the increase in inflation during that same period.

Meanwhile, the expectation for the November Personal Spending is to significantly decelerate to 0.6% from 1.3% in the prior month. This implies that if consumers are seeing their purchasing power erode, they might slow their spending. In turn. this could help bend the inflation curve.

Finally, the December Michigan Consumer Sentiment could show some optimism, moving up to 70.4 from 67.4. Most notably, the survey was carried out while the omicron variant dominated the news. That said, an increase in the figure might show that consumers are more resilient to the pandemic.

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