KEY DATA: Durables: -0.7%; Excluding Aircraft: -0.4%; Capital Investment: 0%/ GDP: +1.2% (up from 0.7%)

IN A NUTSHELL: “Businesses are just not investing heavily and that could weigh heavily on second quarter growth.”

WHAT IT MEANS: If the economy is going to grow at 3% for as long as the eye can see, businesses better spend lots of money on capital goods. That is the only way productivity, which has largely been going nowhere, will improve. Well, that is not happening. Durable goods orders fell in April, led by a sharp decline in commercial aircraft demand. But even excluding aircraft, orders still fell. Purchases of vehicles, computers and communications equipment did rise, but that was more than offset by declines in machinery, electrical equipment, appliances and metals. But the key in this report is always the measure that best indicates capital spending. For the second consecutive month it was flat and has barely budged this year. That is hardly a sign that firms are confident enough about future growth to start investing in it.

The economy grew in the first quarter by a little more than initially thought. The upward revision was nice to see and came from a pick up in consumer spending and a slightly narrower trade deficit. Still, the report was nothing great and with business equipment spending being revised downward, it reinforces the view that growth remains at the same disappointing level we have seen for the past seven years.

MARKETS AND FED POLICY IMPLICATIONS: The economy is just not picking up any steam. Yes, second quarter growth could be in the 3% range, but that would still only mean the first half growth rate was not much more than 2%. And there are no reasons to believe that either businesses or households will spend more rapidly going forward. Consumer debt levels are rising rapidly and the monthly payments are taking away from spending on other goods and services. Meanwhile, the only animal instincts that are breaking out in the corporate arena are in the equity markets. Executives are more than happy to slowly add workers and rake in higher earnings as the economy slowly expands, but they have shown little willingness to invest in the future or pay their workers more. So, where is the future growth going to come from? Got me. On that happy note, let me say to everyone:

Have a happy and healthy Memorial Day weekend!