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Consumers’ purchases of items designed to last at least three years, such as cars and washing machines, edged down 0.1 percent in July compared to June, totaling $257.2 billion.
Orders for durable goods has increased in 13 of the past 15 months, according to The Wall Street Journal, but is now being hurt by shortages of metals, computer chips, and other essential materials, as well as workers, as we have documented in several stories in recent months, including “Labor and Materials Shortage Restraining Recovery, Fed Says” (13 Jul 2021), “Chip Shortage Hampers Global Manufacturing” (23 Mar 2021) and “The Latest Shortage: Tin” (18 May 2021).
July saw a 48.9-percent plunge in demand for non-defense aircraft and parts, a market that can fluctuate sharply, the U.S. commerce department reported.
As is clear by the numbers, orders for core capital goods are clear indicators of overall business investment. On the “core capital goods” orders which exclude aircraft, the numbers were from June to July.
TRENDPOST: The wide-ranging lack of labor and materials around the world will continue to drag on the market for not only durable goods, but also for the full range of consumer and industrial items, thus pushing inflation higher.
On the housing front for example, citing supply chain disruptions, one of America’s largest homebuilders, PulteGroup, issued a press release today which lowered its guidance for home closings:
“Despite the extraordinary efforts of our trade partners, the supply chain issues that have plagued the industry throughout the pandemic have increased during the second half of the year.
“We continue to work closely with our suppliers, but shortages for a variety of building products, combined with increased production volumes across the homebuilding industry, are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021.”
TREND FORECAST: The knock-on effects of the shortages and lost sales will be a slowing of re-employment and income growth, a more sluggish economic recovery, and rising prices.
As prices push higher, pressure grows on the U.S. Federal Reserve and the world’s other central banks to raise interest rates higher sooner to lasso inflation. Such a move would have the counter-effect of driving down equity markets and risking a worldwide financial crisis.
In our report “More Chip Shortages, Higher Inflation” (27 Apr 2021), we predicted that the higher interest rates rise, the deeper the global economy and equity markets will fall, a forecast that is even more pertinent today.