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According to the Durable Goods Manufacturers Shipments, Inventories, and Orders report (M3) released today, new orders for durable goods manufacturers increased $1.9 billion (seasonally and inflation adjusted), or 0.7%, to $267.2 billion in May, while new orders for consumer durable goods decreased 0.62% to $42.9 billion.
The relationship between consumer confidence and manufacturers' new orders for durable goods is fairly clear, as a decline in consumer confidence typically precedes a collapse in demand for durable goods.
Given the historic setback in the University of Michigan Consumer Confidence Survey, it seems clear that we will soon see a significant decline in durable goods spending.
This is exactly the demand destruction the Fed is trying to achieve with its new “fighting inflation” interest rate policy, but so far the decline in durable goods spending in consumer sentiment is likely due primarily to increased consumer spending on non-durable goods as rising food and energy prices force consumers to make tough spending choices.
The following data visualization (click to see a dynamic version) shows new orders for durable goods (blue) on the left axis and University of Michigan consumer confidence (red) on the right axis.
We note that there is a large gap that needs to be filled for the current level of new orders for durable goods to match the current level of consumer sentiment.
Clearly, we expect to see a significant decline in new orders for durable consumer goods over the coming months.