I heard on NPR that there was a 28% increase in aircraft orders. this to me says that it might be a temporarary spike.

Actually, the combination of the low dollar and high fuel prices might really help Boeing, Learjet, and Cessna sell new, fuel efficient, aircraft. The low dollar gives Boeing a big edge over Airbus when selling to Aisian and Middle Eastern customers.

Or is it just inflation???

http://bigpicture.typepad.com/comments/2008/08/durable-goods-d.html

thank God! i needed some good news today...

Folks,

i focused on machinery, which excluded the volatile transportation components. As far as the inflation comment, this is likely a big factor in metals, as i noted, but I have not heard any accounts of mismeasurement with machinery prices. There may be some, but i just haven't seen them.

Dean,

I'm thinking Barry has a better explanation...because I know some won't follow Onom link...

Durable Goods Orders. Indeed, yesterday's rally was (ostensibly) attributed to the surprising strength in Durables.

Only not so much. When you consider the price rises that were included, the strength vanishes.

Goldman Sachs’ Jan Hatzius: Durable Goods Orders: Don’t Be Fooled by Inflation

Durable goods orders beat expectations with a 1.3% month-on-month increase in July. But the apparent strength is due to higher prices, not stronger activity. In fact, deflating orders by the producer price index for durable manufactured goods shows a 9.4% year-on-year drop in real orders, the worst since early 2002.

Even if we adjust for the unfavorable year-on-year comparisons that partly explain this plunge, the recent data look surprisingly similar to those seen in the runup to the 2001 recession.

Just like GDP -- preliminary revisions for Q2 was released earlier today -- and like retail sales, we see inadequate accounting for inflation that creates the illusion of growth.

We are a nation that is beyond denial -- we are kidding ourselves. If we don't start dealing with reality, it will be our undoing.

Posted by Barry Ritholtz | Thursday, August 28, 2008 | 10:30 AM

Of course, the dollar is now rising.

Of course, the dollar is now rising.

Against other currencies or against the collection of things Americans actually purchase?

"which is the best hope for a sustained recovery from the current downturn."

the best hope for a sustained recovery is a return to a 5-10% savings rate and a rebuild our manufacturing base.

Dean,

A good chunk of those orders for machinery are for for aircraft manufacture directly or indirectly. I know someone that is a programmer at a machine shop and they've bought two new machines this year and are expanding. About 1/3 of their customers are aircraft companies who are subcontracting the fabrication of individual components. Also some reverse engineering going on with the military. I've also seen some want ads for "export specialists" at some of these fabrication shops.

Doc,

the machinery may be used in aircrafts, but the point is that ordering machinery for aircraft construction is not erratic, ordering aircraft is. For example, United might place an order for 40 jets this month, which leads to a huge jump in orders. Boeing, on the other hand, doesn't just go out make a huge order for equipment out of the blue. They have production targets which they will raise or lwer, but they don't just switch from ordering zero machinery to huge batches.

anonymous wrote, the best hope for a sustained recovery is a return to a 5-10% savings rate and a rebuild our manufacturing base.

Which misses the point. If the dollar doesn't fall, we're not going to have a manufacturing base to rebuild.

A weaker currency hurts poor people in America. It actually hurts all consumers, but the poor will be hurt the most. It makes imports as well as domestically produced fungible goods more expensive and the poor who do not have savings to fall back on will be forced to live on a lower standard of living. Basically a weaker currency is a pay cut for all people on fixed incomes and wages. To say that we want to help manufacturing by lowering the standard of living of our poor is not a good way to improve our manufacturing base.

The argument that more people will be hired because there will be more manufacturing jobs available for exporting goods is not convincing to me. How do we know that the good that will come out of more jobs will exceed the bad caused by a lower standard of living? In my view, only a couple thousand jobs may be created, but millions of poor will be hurt.

Also, if a weaker currency is good, then why not weaken our currency a whole lot more, like Zimbabwe? Do you think Zimbabwe is helped by having a weak currency? How do you know at what point a currency becomes weak enough?

We cannot control how weak the dollar becomes. If we make our currency weaker, the Chinese may retaliate and make their currency weaker and we can do nothing to stop them. Thus, we end up just producing a lot of inflation and no competitive gain.

We used to be happy about high imports of machinery in Greece until we realized that all that the machinery would displace labor. Effective tax rates on labor income in Greece are much heavier than on capital income, so businesses found it profitable to build some of the most highly automated manufacturing plants in the world. I suppose this substitution effect should be much smaller in the US for a number of reasons. Still, it might be interesting to find out how much of those increased future exports will also increase employment.

Jeffrey,

there's a very strong link between manufacturing output and employment growth, the faster output grows, the more employment grows (or the less it shrinks). I don't know anyone other than you that really questions that one.

Of course a weak currency is not everywhere and always a good thing. but so what?

Dean,

I agree that weakening the currency will lead to more exports and will lead to a growth in jobs. The question I have is how do we know that the good that will come from more jobs will exceed the bad that will come from a lower standard of living? And how do we know at what point the currency becomes weak enough but not too weak? And what do we do if China retaliates and weakens their currency to match our weakness?

Thanks,

Jeff

Jeff,

the measure of how low is too low is determined by the trade balance. Once it is close to balance, we're there.

In terms of the harm to living standards done by a lower trade deficit, we don't have any choice on that. It's like arguing that we should never reduce the budget deficit because it will hurt people to raise taxes or lower spending. we don't have the option of running either large budget deficits or trade deficits for long periods of time.

And, if China does get into a war with us, printing trillions of dollars worth of its currency, it would pay a huge price in terms of inflation, which they are already very concerned about. So, I think it is unlikely that they would want to see their inflation rate ramped up by an order of magnitude or two

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The low dollar gives Boeing a big edge over Airbus when selling to Aisian and Middle Eastern customers.