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Juiced Up U.S. Economy is Losing its Juice

May 25, 2011
Ron DeLegge

Economic conditions, according the 3.6 percent decline in the report for April's durable goods orders, are slowing despite the juice of QE1 and QE2.

Orders for durable goods in April declined 3.6 percent. The main culprit, according to mainstream media reports, was supply disruptions caused by Japan’s March earthquake and less demand for aircraft equipment. Other scapegoats were considered but couldn’t be located before article deadlines.

Durable goods are generally defined as items like refrigerators and cars that can be used for a few years before wearing out.

Motor vehicles sales (NYSEArca: VROM) and parts dropped 4.5 percent as Japan’s production/supply issues infected the output for U.S. automobile sector.

The worst news was in the aerospace sector (NYSEArca: FAA) where Boeing (NYSE: BA) received just two orders in April compared to 98 in March. The durable goods report showed a 30 percent drop in civilian airplane orders and 8.9 percent slump in military aircraft. The one piece of silver lining, according to a completely different report, is that people are still flying.

One of the few bright spots has been with demand for agriculture and construction equipment from developing countries (NYSEArca: EEM). Sales of farm equipment and machinery has been boosting stocks in the industrial sector (NYSEArca: XLI) over the past year. Deere (NYSE: DE) increased its earnings forecast for 2011 and General Electric (NYSE: GE) sees more demand for its energy related products.

Interestingly, the April decline in orders for durable goods was more than the minus 2.5 percent figure a group of economists polled by Bloomberg had originally forecasted. How many times has the collective “wisdom” of consensus forecasts been wrong? Help me out, because I lost count. Or as Nobel Prize winning economist Paul Samuelson quipped, “Wall Street indexes predicted nine out of the last five recessions.”

Sub-2 percent readings for second quarter GDP look realistic. And so does another round of Fed administered QE juice.  

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