Economists are putting the best face possible on today’s report of September 2009 durable goods orders and production, with a percent gain here and there. And yes, September makes five increases out of the last six months. But the drop in manufacturing in this downturn has been staggering, such that the U.S. economy has given up about 10 years’ worth of progress.
Here are some details from the Department of Commerce press release:
New orders for manufactured durable goods in September increased $1.6 billion or 1.0 percent to $165.7 billion, the U.S. Census Bureau announced today. This was the second increase in the last three months. This followed a 2.6 percent August decrease. Excluding transportation, new orders increased 0.9 percent. Excluding defense, new orders increased 0.5 percent. Machinery, up five of the last six months, had the largest increase, $1.7 billion or 7.9 percent to $23.4 billion.
The better news of the last few months hardly makes a dent in what the U.S. economy has given up in the manufacturing sector. Consider the drop in durable goods during this downturn, the blue line in the graph below, prepared by the magical FRED system of the St. Louis Federal Reserve Bank. The red line is GDP.
This down cycle has been especially sharp: from the recent peak in January 2007, the manufacture of durable goods dropped 24 percent by through 2009. In the downturn of 2002, the top-to-bottom decline in durable good production was on the order of 15 percent. In the punishing double-dip recession of the early 1980s, the fall in durable good manufacture was held to 16 percent.
But today, even after a few months of recovery, the dollar value of business today is below the trough of the 2002 recession, and about equal to production in 1999, even before adjusting for inflation. Yikes.
Here’s one additional bad news / good news point, on the composition of the durables numbers. Production of motor vehicles and parts peaked in March 2004, and hovered at the same level through mid-2007. By August 2009, though, vehicles and parts were down almost by half. What’s picking up the some of the slack is the production of defense products, which is up 32 percent from July 2007. Defense amounts to only six percent of durable goods, but it’s disturbing to have it be the sole area of strength.
