No CapEx Recovery: Durable Goods Disappoint As Capital Goods Orders And Shipments Decline
Back in April 2012, before the topic of the Capital Expenditures crunch was even touched by the mainstream media, we penned "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" in which we explained why as a result of faulty Fed policy corporations are dumping all their excess cash in dividends and buybacks, and which "means far less cash left for SG&A, i.e., hiring workers, as temp workers is the best that the current "recovering" economy apparently can do. It also means far, far less cash for CapEx spending. Which ultimately means a plunging profit margin due to decrepit assets no longer performing at their peak levels, and in many cases far worse." Since then, virtually everyone has jumped on the "lack of CapEx" bandwagon. Alas, in today's Durable Goods report we got yet another confirmation that over a year and a half ago we were once more right: there is simply no capex growth in the Fed's centrally-planned New Normal.
While the Census Bureau disclosed that headline Durable Goods declined in October by 2.0% (and much more on an unadjusted basis), this was in line with expectations, and was driven by an unexpected -15.9% collapse in new aircraft orders, driven by Boeing which had a 60% drop in orders, down from 127 to only 79 for the month. However, the big surprise was in the ex-transport durable goods number, which declined by -0.1%, crushing expectations of a 0.5% increase and down from last month's revised +0.2%. In other words, the modest rebound in orders in late summer now appears to have been purely a function of channel stuffing, which now has to work its way through the system, as manufacturing with unfilled orders dropped by a whopping -3.1%.
The sharp downward inflection point in both sets of order books can be seen clearly in the two charts below:
It will get much worse in November if there is no pick up in orders as the Y/Y will once again trend down to the unpleasant 0% number.
But the punchline was in the Core CapEx data set: the Capital Goods orders non-defense ex transports, which shocked everyone by dropping -1.2%, once again leaving the consensus estimate of a 0.8% increase hanging, and is the fifth consecutive miss in a row!
Finally, the capex shipments also declined by -0.2%, putting a nail on all those stories which predicted, as they do every year, that this year will finally be the year in which US corporate capex spending picks up. It did not. And 2014 will be no different either, when dividends and buybacks dominate, to the detriment of actual investment in labor and the long-run. Thank you activist investors.
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