Moneybeat - A durable goods rebound

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Orders for big-ticket items—major appliances, tools, computers—things meant to last for three years or more, rose once again and that makes four months in a row. The economic term is durable-goods orders. The month-over-month rise was smaller than the previous few months, but that’s to say it was more in line with normal economic activity.

This is another of the categories that suffered dramatic decreases in March and April and then started to rebound just about as dramatically over the next three months. It’s not quite back to where it was a year ago, but it is a backward-looking sign that points to future business growth.

Precisely the sort of economic data point financial analyst and adviser David Bahnsen’s been looking for. And we say good morning to him now from New York City.

David, hope you’re well.

DAVID BAHNSEN, GUEST: Yes, good to be with you, Nick.

EICHER: Durable-goods orders, definitely a V-shape chart with double-digit percentage declines when COVID first hit, then double-digit increases. So now we’re settling in with a four-tenths of a percentage point rise in August. I know you’re really happy with this. What does it mean?

BAHNSEN: Yeah, actually not just that it was up. It was expected to be up, but it was up more than expected and then I spent quite a bit of time this week studying what made it go up and I really think that we have a whole global trade story playing out. I think that the demand for household imports is way up in America and I think that even when you see a really significant export growth out of China, that is largely an American story. We’re certainly their biggest customers. So, the durable goods orders speaks to a rebuilding of inventories—inventories were really depleted after the quarantine period, you can imagine. And you just seem to have a pretty good relaunch of manufacturing and industrial production here in America.

EICHER: Alright. And speaking of winning streaks, now three months in a row for home sales, another increase, even with COVID uncertainty.

BAHNSEN: Well, there’s a lot of things happening with housing and it has been a pretty consistent multi-month move higher. You do have, I think, a concerning data point out there, which is that inventories are so low, housing supply is so low that people mistake that as a positive thing because it boosts prices higher. And so if one is a member of the cult of permanent house price appreciation as some good thing, and I only say “cult” a little bit tongue in cheek, it’s such a fanatical view economically, but it really has become one that almost has sort of religious tenets in American economics where we talk as if the permanently escalating prices of housing are supposed to be a good thing and ignore the fact that our kids and grandkids have to buy houses and when house prices are going up because of a mismatch of supply and demand as opposed to natural forces of supply and demand. I don’t think it’s a good thing. 

But to your point in the COVID moment, the fact that there is so many people looking to buy a home speaks to both a social and an economic reality in this current point in time, which is that you do see a lot of millennials that were living with mom and dad or that were living in multi-family that are now looking to maybe go get settled in a first entry home in suburbia and that lower price point, housing seems to be healthy. A little bit less active as you go up the food chain in price point.

EICHER: I keep an eye on weekly initial claims for unemployment benefits, probably the best, most real-time indicator of where we are on jobs, and it’s just stubbornly remaining in that 800,000 zone. It bears repeating, what had been a normal number in a healthy economy and job market that number would bounce around in the 200-thousands pre-COVID so this persistent 800,000 is just a reminder of what a hard hit we’ve taken. How do you read it? Am I overreacting?

BAHNSEN: No, I don’t think you’re overreacting. I think if I were one of the 800,000 people in the food and beverage and retail and hospitality industries in a couple of the states that are creating all of this mess, then I would consider it a very big deal. You got very good news from Governor DeSantis of Florida that they are removing restrictions in some of their service industries in Florida, and yet that 800-to-900,000 weekly initial jobless claims that you’re referring to are literally a direct byproduct of the more draconian measures that seem to be very disconnected from COVID data in specific states and I expect those numbers will not get better until the policies of those areas matches their COVID reality, and I expect it will get better as it does.

EICHER: Let me hit GDP for a minute. Gross Domestic Product—that’s the one-number measure of all the goods and services this economy produces and we talk about it in terms of percentage-point increases or decreases. But it’s a percentage change on an 18-19 trillion-dollar economy—trillion with a “T.” 

First quarter of the year was a decline, but we knew that was the tip of the iceberg. Second quarter a disaster, almost $2 trillion annualized big drop. 

But what I’m leading to is the statement last week of one of the regional governors of the Federal Reserve system, James Bullard of the St. Louis Fed bank saying he thinks a full economic recovery is possible by year end—that third and fourth quarters, Q3, Q4—will be so much better that it’ll wipe out all our COVID losses. 

Is Governor Bullard overconfident?

BAHNSEN: There’s things with Governor Bullard. He’s a very respected federal reserve governor and there’s things with James Bullard that I vehemently disagree with and things that I really strongly agree with. But in terms of the annualized number for GDP after the Q3 and Q4 is available, will we end up with a positive number for all of 2020 even after that Q2 debacle? And, yeah, it’s not out of the question. GDP could end up being positive on the year. It’s going to be hugely positive Q3 and hugely positive Q4. More so in 4 than 3. The question is if that’s enough to rebound from the Q2 drop.

EICHER: OK, David Bahnsen, financial analyst and adviser. Thanks!

BAHNSEN: Thanks so much, Nick.

(AP Photo/Mary Altaffer, File) In this Jan. 3, 2020 file photo, the Wall St. street sign is framed by American flags flying outside the New York Stock Exchange in New York.

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