The latest data of durable goods orders, released Friday by the Commerce Department showed an increase of 4.2% for July but excluding transportation goods the order declined by 04%.
In addition orders for capital goods fell 3.4% over the same month while the June figure was revised down to 2.7%.
The latest data are not only very weak but are a sign of the weakest economic recovery since WWII according to several US economists and analysts.
The decline in capital goods orders is a sign that US companies are hesitant to invest and expand their production capacity in light of global uncertainty.
China, Europe and Brazil, once thought as the economic drivers to set the tone of recovery after the end of the economic recession in the summer of 2009, are now struggling themselves to keep their growth at a steady pace.
We have seen large dips in economic growth in China to an annual rate of 8%, down from 11% during 2011, and continued fiscal and debt struggles in Europe which largely affect the US economic growth overall since both regions are crucial to the US production output and exports.
US exports to both regions have been stagnating since 2007 due to a slowing demand from Europe and China.
China in particular struggles with high inflationary pressures which lead the government to intervene through quantitative easing to ensure their economy does not overheat. That results in a net decline of production materials which in large part are imported from the US.
Europe on the other hand is still not out of the woodworks when it comes to curbing the budget shortfalls and the debt/GDP ratios of some members which puts extra pressure on Germany, France and The Netherlands to control their inflation for the benefit of euro stabilization.
The US economy continues to grow albeit at a very slow rate but should the durable goods orders continue to falter then the risk of a double-dip recession in 2013 is not unimaginable.
This scenario would result in the unemployment rate rising again to 9%, currently at 8.3%, when the expected budget cuts and tax increases take effect early 2013.
The Federal Reserve has yet to give a sign that it is willing to implement QE3 but given the latest data it is expected that the next FOMC (Federal Open Market Committee) may hint at a higher possibility of bond buy-back programs to curb long-term interest rates even further and to encourage business borrowing and spending to keep the US economy for retracting any further.
Written by Nick Doms © 2012, all rights reserved.
