Key takeaways:
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The frame should dominate analysis of new order fundamentals: long term weakness dominates.
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The new order bounce back in March/April was led by the transportation sector (MVPs in particular), but the bounce back should be set against the depth of the declines.
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Outside transportation the trend is very weak.
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Consumer durable goods orders on a smoothed 6 monthly basis have weakened noticeably since the start of the year.
Commentators are increasingly concerned about the risk of a recession in the US Economy. Recessions are typically short term step backs/retracements within expanding frames whereas we are in a rather complicated contracting one the one hand (developed economies) and transitioning frame (developing economies moving from investment dependence to consumption/service sector dependence) on the other characterised by excessive debt levels, unconventional monetary policy and increasing income inequality to name but a few fundamental issues.
So let us look at US manufacturing new order data, at first in terms of the frame, which bounced back on a monthly basis in April:
The frame
We can see from the following chart that annualised real growth rates over rolling 10 year time frames (using new order data adjusted for PPI and smoothed) have been heading downwards since the start of the decade. The real annualised rate of growth over rolling 10 year time frames shows that the current cycle is much weaker than the pre 2008 cycle.
We can see the step down in growth more easily if we just view the high water mark dynamics (which ignores the current index level if it remains below the HWM).
In reality given the declines in flows since 2014, new orders for manufacturing adjusted for the PPI stand below levels reached at the end of the 1990s, and yet, here we are all worried about the risk of recession when the risk of something far greater has already occurred. Tied into the frame is the key dynamic of global rebalancing: cheap labour in emerging/developing economies had offshored a significant amount of manufacturing output from the late 1990s onwards (the weak order data partly reflects this) and the expected maturing of developing economies consumers and rising wage costs was anticipated by many to create a rebalancing of global economies. This is presently at risk a) due to the time frame of transition being longer than many expect and b) given that technology is driving out labour in key industries.
And in the next chart we see nominal annualised rates for new orders over rolling 10 year time frames: clearly the structure and balance and dynamics of the US economy and the attendant global economic dynamics are unable to support the type of growth the economy had experienced in post WWII years. The primary issue we are facing today is not one of a prospective recession but of a weakening frame:
