When something widely predicted keeps not happening, maybe it’s time to start de-emphasizing speculation as to when it might happen, and start focusing instead on why the predictions have been off-base.
I’m not saying that that time has yet arrived when it comes to the impact of President Trump’s tariff-heavy trade policies on the U.S. economy – which have triggered any number of forecasts of disaster, or at least serious slowdown, but which have, as I’ve reported, so far brought nothing of the kind. But with the release this morning of the Census Bureau’s latest advance gauge of orders for durable goods industries, the time to start reassessing predictions of trade-mageddon clearly continued to get closer.
The biggest contrarian piece of evidence in these durable goods numbers (which go through July) is the finding on American business spending on new orders for capital goods minus defense products. This data series is widely, and rightly, regarded as the best available evidence of corporate purchases of machinery and equipment, and therefore a highly revealing sign of business optimism or pessimism – and of the economy’s prospects.
For if businesses are spending strongly on such goods, they’re surely expecting good times to continue, or less-than-good times to become good. If such spending is weak, then the opposite conclusion is certainly reasonable to draw.
In this vein, a central argument against the Trump trade policies is that, at the least, they’ll increase what businesses supposedly like least – uncertainty about the future – and that as a result, corporations will either freeze or cut capital goods spending and set off a downward economic spiral. But the newest Census data show that nothing of the kind is yet happening.
According to the new release, spending on non-defense capital goods excluding aircraft (defense spending is excluded because it’s the result of government policy, not market forces, and therefore says relatively little about the fundamentals of the economy; aircraft figures are excluded because they can be highly volatile) rose a healthy 1.40 percent between June and July.
If this sequential increase is confirmed in the final July numbers, which will come out in early September, then it will represent the fourth straight monthly advance. And what’s revealing about the time-frame is that the first tariffs to be imposed by the Trump administration per se (as opposed to levies imposed by the independent U.S. International Trade Commission) came in late March in the form of the steel and aluminum tariffs. So these “core capex” findings seem to indicate substantial certainty on the part of American business.
Skeptics can (correctly) point to signs that the pace of core capital spending has slackened since the tariffs’ advent. As indicated above, the final core capex numbers only go through June, but they show that from January through April, such spending rose a total of 2.68 percent, but only 0.92 percent since April.
Yet looking over the comparable data for previous years – when such tariffs were only vague talk (2017) or off the table (before Mr. Trump became president) – shows that this pattern is nothing out of the ordinary. Here are the January-thru April, and the April-thru-June final core capital spending changes for 2014 through 2017:
2017 +2.08 percent -0.03 percent
2016 -1.61 percent -1.73 percent
2015 -2.43 percent -1.35 percent
2014 -2.16 percent +4.32 percent
Yes, as emphasized in previous such posts, the time-frames are short, many more tariffs could lie ahead, and they could take a major toll on the American economy. But until this damage starts appearing, perhaps the Mainstream Media and the other economic and business powers-that-be might begin investigating why it may not?