Diane Swonk, Chief Economist
August 25, 2010 – 7:50 a.m. CT
Durable Goods Up, But Short of Expectations
Durable goods orders edged up 0.3% in July, which was a disappointment, especially in light of declines during the two previous months. The data for the previous two months, however, were largely revised up, which means we were in a smaller hole than initially thought regarding the trend in durable goods orders. Much of the rise in July could be attributed to an increase in aircraft orders and parts at Boeing, which actually occurred in late June, but were not recorded until early July.
More disappointing was the 2.8% drop in orders for nondefense capital goods. Large companies awash in cash appear to be more focused on mergers and acquisitions than expansions, while exports, particularly to China, are slowing.
The Bottom Line: The shortfall in durable goods orders is just one in a series of reports confirming our forecast that the recovery is losing momentum. In response, Fed chairman, Ben Bernanke, is expected to corral the dissenters among the ranks of the Fed, and convince his colleagues to ease further - maybe as soon as September.
The Fed's balance sheet, in particular, is expected to get larger prior to the end of the year. It currently stands at about $2.2 trillion, but hit a high of $2.5 trillion before many of its short-term funding programs expired. How high can it go? A lot higher if the Fed deems it necessary. The recent financial reform legislation allows Congress to review changes in the Fed's balance sheet, which are already public, but only after the fact.
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