US Durable Goods Orders August Preview: Duplicating the retail sales slowdown

Purchases of long-lasting consumer products are projected to moderate after the three strong months that followed the shutdown in March and April.

New orders for durable goods are forecast to gain 1.5% in August after climbing 11.4% in July, 7.7% in June and 15% in May.  The combined 34.1% increase through July nearly replaces the 35% decline in the shutdown months.

Durable goods

Non-defense capital goods, the common proxy for business investment spending, are expected to increase 0.5% on the month following gains of 1.9% in July, 4.3% in June and 1.5% in May. As in consumer goods the 7.7% three month total of is just under the 7.9% pandemic decline. 

Goods orders outside of the transportation sector should show a 1.2% rise after increases of 2.6% in July, 4% in June and 3.4% in May.  The 10% gain comes after a 10.1% March and April drop.

Retail sales

The explosive rebound in sales in May and June, 26.6%, which more than reversed the 22.9% lockdown decline, has turned into normally strong increases of 0.9% in July revised from 1.4% and 0.6% in August.  Expectations were exceeded in May, 10.1% vs 4.7%, June 6% vs 3.6% and July 0.9% vs 0.8%, only in August did the 0.6% result come in lower than the consensus forecast.

The monthly average of 0.866̄%, or 5.2% for the half year would be considered a sign of a good to excellent consumer market in any other economy.

Sales in the GDP component control group were equally buoyant over the period. Though August slipped 0.1% on a 0.5% forecast and July was revised to 0.9% from 1.2% the average for the six months from March to August was 1.28%, 7.7% for the half year. 

Retail sales control group

Non-farm payrolls and initial claims

Payrolls are expected to increase 875,000 job in September the first month below one million since the employment recovery began in May.  Through August 47.8%, 10.595 million, of the 22.16 million layoffs in March and April have been rehired. If September’s estimate is correct that will move to 51.8%, 11.47 million rehires.  By any standard over 10 million remaining unemployed is an incomplete recovery.

Initial claims are improving only slowly with the latest week at 870,000 rising slightly from 866,000. Over the last month the four-week moving average has fallen 11.5% from 992,500 to 878,250. 

For an economy ostensibly running at a 32% annualized rate in the third quarter according to the Atlanta Fed GDPNow estimate, nearly one million new layoffs each week seems incongruous.

Conclusion and markets

The employment recovery may have already done the easy work. Intact companies have likely recalled most or all of their employees. The millions remaining out of work are from failed firms and small businesses or sectors like restaurants and travel that are operating at a small percentage of former volume.

Retail sales and durable goods can be expected to have declining performance as long as millions are still unemployed and jobless benefits begin to expire.

Durable goods is a sub-set of retails sales. Its results rarely stray from the larger picture.  With sales already released there is little new information to be had.  Markets and the dollar will not pay more than cursory attention.