Wednesday, July 28, 2004

Economic Theory: War Economy,

I think it's pretty clear by now that without the stimulus and war spending that we would be in a clear recession. This is a war economy according to the durable goods orders.

Posted 7/28/2004 8:44 AM
June durable goods orders are down, ex-transportation

WASHINGTON (Reuters) — Orders for durable goods rose 0.7%, much less than expected, in June, but excluding the transportation sector, orders dropped 0.6%, government data showed Wednesday.
On the plus side, the Commerce Department revised May's drop from 1.8% to a 0.9% decline.

But June's figures were disappointing. Economists had forecast a 1.9% rise, as the factory sector recouped after two months of loss.

Durable goods orders excluding defense fell 0.4%, fourth fall in six months, while orders excluding transportation declined 0.6%, a third monthly retreat.

The data signals that demand was only building slowly at the close of the second quarter. And growth may not get as strong a boost from the factory sector as officials had hoped as the third quarter gets under way.

Preliminary second quarter gross domestic product will be released Friday and is forecast to show U.S. growth slowed to a 3.6% annual rate, compared with 3.9% in the first quarter.

Transportation equipment orders advanced 4.2% and capital goods gained 4.1% in June but many other categories were subdued, with computers and electronic products retreating 1.0%.

Non-defense capital goods excluding aircraft — a proxy for business spending — was up 1.2%. Defense-related capital goods orders jumped 30.4% while demand for military aircraft soared 79.1%.

It's a mixed bag. Companies are buying more capital goods- factory equipment, etc.-but durable goods are down overall indicating that consumer buying is considerably off for the total number to be down. The transportation sector is being bloated by the incredible 79% jump in the military aircraft orders. What the hell are we buying?

At any rate, we're in a full blown war economy. It explains a great deal about why things are bad, but not that bad. War economies always have this eerie artificially inflated quality to them. Things aren't good, but the bottom doesn't fall out because of the war spending.

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