Yes, Biden: Inflation is Real

Orders for durable goods manufactured in the United States increased at a slower rate than predicted in April, reflecting the toll inflation is taking on economic development.

The Facts

The Commerce Department reported Wednesday that durable goods orders climbed 0.4 percent, the lowest number in seven months. Analysts predicted a 0.7 percent increase.

A subcategory is known as core capital equipment, which excludes defense spending and airplanes, increased by 0.3 percent.

This was also below forecasts of a 0.5 percent increase. This is also perceived as a barometer for capital invested and a signal of how companies view their future prospects.

March’s overall number was reduced from 0.8 percent to 0.6 percent. The March core capital goods result was bumped up from one percent to 1.1 percent.

The data for durable goods orders are all presented in nominal terms, which means they haven’t been adjusted for inflation. Inflation rose at its fastest rate in decades from March to April.

The producer price for durable goods increased 0.9 percent in April, compared to March, while the index for private investment goods prices increased 1.2 percent.

This shows that increased costs, rather than extra goods being ordered, accounted for the majority of the rise in April orders.

Durable goods orders are anticipated to be hit by inflation, causing families and corporations to cut back on expenditures.

The majority of experts and journalists who cover durable goods have yet to adapt their interpretations of nominal data to account for the impact of high inflation.

Mainstream news organizations made the error of mistaking nominal increases in orders for real economic growth several times in the last 12 months.

Orders for consumer durables increased by 10.5 percent year over year. Orders for core capital items increased by 10 percent.

Private consumption of durable goods soared much above pre-pandemic levels last year, boosting orders from American companies.

Consumers, many of which were flush with stimulus money and extra savings, due to deferred loan payments, stocked up on gym equipment, home office furniture, major appliances, and enhanced entertainment systems.

This had them moving to spend away from the services industry. This exacerbated supply chain bottlenecks and forced up product pricing.

What Can We Do?

A manufacturing slowdown appears to be starting.

The public’s evaluation of buying circumstances for durables achieved its lowest score since the item first appeared on monthly polls in 1978, according to a University of Michigan study of consumer mood released in May.

This was mostly due to high pricing. The Federal Reserve Bank York’s Empire State Manufacturers Survey released last week revealed a drop in industry activity.

The Philadelphia Fed’s poll, released on Friday, showed a faster downturn than projected, just managing to stay at new highs. The Richmond Fed’s survey of factories revealed a decrease on Tuesday.

Manufacturers signaled smaller output increases on Tuesday, according to S&P Global, amid rising inflation, worsening supplier shipping times, and weaker sales growth.

Consumers are migrating back from purchasing big-ticket items, according to some of the country’s major retailers, notably Best Buy, Walmart, and Target.

As a result, some merchants have excess inventory in some categories, which could lead to a drop in orders in the coming months.