PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Durable Goods in April: The Inflation Factor

By at 25 May, 2022, 11:26 am

by Raymond J. Keating –

After a decline in February, manufacturers’ durable goods orders have grown in both March and April, according to the latest report for the U.S. Census Bureau. However, inflation significantly undermines these reported gains.

New orders for durable goods grew by 0.4 percent (seasonally adjusted) in April, after an increase of 0.6 percent in March and a decline of 0.7 percent in February. Meanwhile, shipments of durable goods grew by 0.3 percent in February, 1.4 percent in March and by 0.1 percent in April.

As for capital goods new orders, which are orders for goods that produce other goods (that is, this is investment), they grew by 0.7 percent, after declining in the two previous months (-1.7 percent in March and -2.2 percent in February). Shipments increased by 0.3 percent in April, after increases of 0.2 percent in March and 0.4 percent in February.

Within this investment category, nondefense capital goods orders grew by 0.4 percent in April, again after declines in March and February (-0.5 percent in March and -4.1 percent in February). Shipments expanded by 0.6 percent in April, after increases of 0.4 percent in March and 0.3 percent in February.

Nondefense capital goods excluding aircraft new orders always warrant attention as this serves as an estimate of what private investment in equipment and software might look like in forthcoming GDP data. New orders here grew by 0.3 percent in April, after an increase of 1.1 percent in March and a decline of 0.2 percent in February. Shipments rose by 0.8 percent in April, after growth of 0.2 percent in March and 0.8 percent in February.

In general, the April durable goods report appears pretty good.

The Inflation Factor

However, this report reflects nominal dollars, not real dollars, that is, the data are not adjusted for inflation. If we look at changes in the Consumer Price Index, inflation registered 0.3 percent in April, 1.2 percent in March and 0.8 percent in February. Therefore, in real terms, durables goods orders and shipments have performed far worse than stated by the nominal dollars and changes noted in the monthly report.

For example, after considering inflation, that important investment number – i.e., nondefense capital goods excluding aircraft new orders – experienced a much larger negative decline in February than the nominal numbers reflect; and the gains in March and April are effectively wiped out.

Make no mistake, the costs of inflation are real and severe for everyone – consumers, small businesses, large firms, investors and workers. And rather than inflation being fed by too much economic and/or employment growth – as many “experts” mistakenly argue – inflation serves to undermine growth by increasing costs, interest rates, risks and uncertainty.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

News and Media Releases