KEY DATA: Orders: +0.5%; Ex-Aircraft: +2.8%; Aircraft: -38.2%; Business Investment: +0.9%: Backlogs: +0.4%
IN A NUTSHELL: “Demand for big-ticket items continues to be strong and with order books growing, production will have to pick up.”
WHAT IT MEANS: The expansion is deepening, and the manufacturing sector is helping lead the way. Demand for durable goods rose moderately in March, but that was due largely to a sharp drop in aircraft orders. I am not sure exactly what the government was seeing, but Boeing’s orders rose by almost 140% that month. I suspect we will see that difference whittled down over the next couple of months. Looking at the other major categories, the results were somewhat mixed. Solid gains were posted for communications equipment, machinery, and metals, but orders for computers and electrical equipment eased. But most importantly, the proxy for business investment spending, which is nondefense capital goods excluding transportation, rose strongly. Companies are putting their money to good use and that bodes well for future economic activity.
Another sign that the manufacturing sector is improving came from the Dallas Fed’s Texas Manufacturing Outlook Survey. While the overall index fell, the level is high and the details were pretty good. Order demand is accelerating as is hiring. But so are costs and prices, confirming the worries about inflation increasing in the short-term.
IMPLICATIONS: The economic data continue to confirm that if the government spends like crazy, the economy is going to do well. There is so much money being pumped into the economy that the only question is how fast the economy will expand. The numbers are coming in higher than expected and that is pushing up estimates for most of this year. And as I noted last week, the president is proposing a ton of additional spending that could take us through the rest of his first term. These are proposals that will fundamentally change the way government has interfered in the economy since President Reagan began altering spending priorities from households, social programs and the environment toward business activities and wealth generation through reduced taxes, forty years ago. The only way that budget restructuring can be sustained is if the business and income tax cuts that drove those changed priorities are modified significantly. The 2022 election is setting up to be possibly the most consequential one in since 1980.