There has been a lot of worry about whether the US economy will stagnate or fall into a recession. It has kept up the theme of safe haven demand, pushed gold higher, weakened the dollar and disrupted forex. But, now we are getting real data to show what’s happening in the economy. That could give a much more solid indication of whether the market is reacting out of fear, or there is something to actually worry about.
And just this week we got an indication that the current market trends are due to skittishness among traders instead of some major fundamental issue. Corporate earnings so far this week have been generally solid, beating expectations by a similar rate as previous quarters. But markets had been trending lower, as US President Donald Trump threatened to fire Fed Chair Jerome Powell. Then on Tuesday Trump confirmed he had no intention to actually dismiss the head of the Federal Reserve, and markets shot up. In fact, they had the third best performance of the year. These large market moves were not responding to data, but comments, a clear sign of market skittishness.
What Does It Mean for Coming Data?
Safe haven demand has been driven by concerns around the potential impacts of trade war, evidently. But those are concerns. So far, economic data has not shown any signs of a significant slowdown. Q1 GDP growth is expected to be lower, but that was also expected before Trump was elected, let alone following the tariff announcement.
This sets the market up for a potentially large bounce if the trade situation is resolved fairly quickly. And if the data remains solid. There could be a potential problem in this last point. Because tariffs would raise costs, many companies have been ‘front-loading’ orders for major goods. Apple, for example, shipped almost $2 billion in iPhones to the US ahead of the tariffs. This increased buying has kept economic indicators rising despite worries about the future of the economy. But, now those companies will have increased inventory to work through, which could lead to a decline in activity in the coming months.
What to Look Out For
Durable goods orders are a particularly interesting data point at this juncture. They represent how confident businesses are in future economic activity, since they are large purchases in machinery that will take at least a year to generate returns. If businesses are worried about the future, they will reduce capital spending, and durable orders will go down.
But, with businesses looking to stock up ahead of tariffs, durable goods could stay elevated. Additionally, in the first months of the year there was a problem with supplying enough motor vehicles to meet demand. That situation is also expected to be resolved by now.
The Figures and Reaction
US March durable goods orders are expected to accelerate to 1.7% growth from 0.9% prior. But, when excluding transportation, then they are actually expected to decelerate to 0.1% compared to 0.8% previously.
With durable goods remaining in positive territory, it would be an indication that the US economy is on solid ground. That could keep a growing return to risk appetite intact. On the other hand, a sudden return to negative in durable goods orders could once again spook the markets, reversing the gains from the start of the week.
