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Solid US Durable Goods Data Complicate Outlook

Don Curren March 13, 2019

A relatively robust durable goods report for February in the US that comes after some discouraging data from other sectors complicates the outlook for the US economy, and suggests it may not be inevitably headed toward a sharp slowdown or recession.

The US Census Bureau announced Wednesday that new orders for manufactured durable goods in January increased $0.9 billion or 0.4% to $255.3 billion.

This increase followed a 1.3% expansion in December, the bureau said. Economists had expected a 0.5% decline in durable goods from the previous in January.

Excluding transportation, new orders decreased 0.1%.  The Census Bureau said new orders excluding defense increased 0.7%.  Transportation equipment, up five of the last six months, drove the increase, $1.0 billion or 1.2% to $90.9 billion.

Recent data from the US economy have been mixed, but some significant indicators are suggesting the economy is slowing. Nonfarm payrolls data for February, released Friday, showed job creation totaled a piddling 20,000 in February – down from 331,000 in the previous month.

January retail sales data, released Monday, showed that retail sales rose 0.2% in the month, but the December headline number was downwardly revised to -1.6% percent from -1.2%, the fastest fall since 2009.

Market participants believe the US Federal Reserve will be extremely cautious in proceeding with any further monetary tightening this year, given the signs of incipient weakness in the US economy.

Recent developments on the inflation front point to well-contained price pressures, a factor that also suggests the Fed can proceed prudently and gradually with any additional monetary tightening.

It was reported on Wednesday that the US Producer Price index edged up 0.1% February, softer than the 0.2% rise expected by economists.

On Tuesday, the Labor Department reported headline CPI inflation edged down to a two and a half year low of 1.5% in February.

The DXY US dollar index inched marginally higher after the durable goods and PPI releases, but currency traders’ attention remains primarily focused on developments in the Brexit file.

The British pound rebounded significantly on Wednesday after swinging lower on Tuesday ahead of the House of Commons vote to reject for a second time the Brexit deal offered by Prime Minister Theresa May.

Bottom Line: Solid durable goods orders data for February suggest some elements of the US economy are still performing decently, but they won’t alter expectations that the Fed will proceed with circumspection on the monetary policy tightening and thereby aren’t very significant for the US dollar.

Don Curren
Market Strategist and Content Editor

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