The U.S. economy faced a setback in October as Durable Goods Orders declined by 2.2%, falling short of analysts’ expectations. Economists were expecting a more modest drop of 1.5%. This decline comes after a 0.7% jump in September, sparking fears of the strength of manufacturing activities continuing to decelerate across the country.
The data released did point to a wider trend across the manufacturing sector. In October, orders without defense parts fell by 1.5%. This is a drastic reversal from the paltry 0.1% growth we experienced last month. This would indicate that demand for goods unrelated to the national defense is softening, an early sign that overall economic growth may be stalling.
There were glimmers of hope in the data. In October, orders minus transportation increased 0.2%. The September surge had occurred following a 0.7% gain in September, subject to distortion from erratic vehicle order shifts. Analysts were expecting an increase of 0.3 percent for this category in October. This indicates that even though they may have some strengths, those strengths are not powerful enough to outweigh declines elsewhere.
Along with the Durable Goods Orders data, other key economic indicators painted a picture of today’s turbulent economic waters. The GDP Price Index increased 3.7% in the third quarter, well above the expected increase of 2.7%. The second quarter was a much more modest 2.1% increase. This increase reflects the strengthening inflationary pressures that will influence future decisions on monetary policy.
Core Personal Consumption Expenditures, one of the Federal Reserve’s favorite inflation measures, skyrocketed by 2.9% in Q3. That’s up from a 2.6% increase in Q2. This measure strips out volatile measures such as food and energy prices. Like the core measure, it provides a better sense of the underlying inflation trend. Consumer Price Index soared to 9.1% in June, and Personal Consumption Expenditures Prices skyrocketed 2.8% just in Q3. This increase, in contrast to 2.1% in Q2, demonstrates the worsening inflationary landscape.
Market participants are straining to read these competing signals. Like a good greedy capitalist enterprise, they’re remaining very guarded on how this will affect long-run economic growth and Fed policy. The combination of declining durable goods orders and rising inflation may compel policymakers to reassess their strategies amidst changing economic conditions.