Durable Goods Report Points to Troubling Business Investment

By SBE Council at 26 September, 2024, 6:32 pm

by Raymond J. Keating -

New orders for manufactured durable goods, according to the latest report from the U.S. Census Bureau, were flat in August. This was after significant volatility in the previous two months (+9.9 percent in July and -6.9 percent in June) due to transportation orders.

Comparing the first eight months of 2024 versus the same period in 2023, durable goods orders declined by 1.3 percent.

Zeroing in on new orders for capital goods (i.e., good that make other goods), August experienced a decline of 0.4 percent (again, after major swings in June and July due to aircraft orders). And comparing the first eight months of 2024 versus the same period in 2023, new orders for capital goods declined by 5.8 percent.

New orders for nondefense capital goods excluding aircraft always warrants attention as it is an indicator for private investment in equipment and software in forthcoming GDP data. These new orders grew by 0.2 percent in August, after a decline of 0.2 percent in July and a gain of 0.6 percent in June.

Once more, comparing the first eight months of 2024 versus the same period in 2023, new orders for nondefense capital goods excluding aircraft grew by 0.3 percent. At least, there was some tiny growth here, but factor inflation in (durable goods orders are in nominal dollars), and this turns negative.

Source: Federal Reserve Bank of St Louis, FRED

Also, as noted in the above chart, new orders for nondefense capital goods excluding aircraft actually have stagnated over the past two years. Again, consider inflation, and this measure of business investment has declined.

This speaks to ongoing problems on the manufacturing front in our economy. And that's a small business issue, as the vast majority of manufacturers in the U.S. are small firms, with 60.3 percent of employer firms in manufacturing having fewer than 10 employees, 75.2 percent fewer than 20 employees, and 93.4 percent fewer than 100 workers, based on the latest Census Bureau data (2021).

From a policy perspective, the proper responses are not protectionist tariffs, stopping foreign investment in the U.S., doling out subsidies to politically favored firms and industries, further jacking up regulatory costs, or increasing taxes, for example, on businesses and capital gains.

Such political responses are at the core of our current woes, and expanding such a wrongheaded agenda will only make matters worse. Instead, policymakers should be implementing significant and permanent tax and regulatory relief, advancing free trade, reining in government spending and advancing free trade.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II:52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

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