The headline reading of the Commerce Department’s durable goods orders report contracted for the third consecutive month during March, due largely to declines in demand for transportation and defense goods. However, the markets took their cue from the durable goods orders excluding transportation reading, as the index surged 1.5 percent and helped to keep the US dollar rally alive.
Nevertheless, there were few other bright points in this particular report, as orders for non-defense capital goods excluding aircraft – a gauge of future business investment – went unchanged after two months of declines, suggesting that there is little potential activity in the business sector available to pick up the slack of diminishing consumer spending. Meanwhile, the US housing recession continued to reach news lows as sales of new homes plummeted 8.5 percent. Not only was this the sharpest drop on record, but it was also the fifth consecutive decline, marking the worst trend for the housing market since the second and third quarters of 2001. Overall, it is clear that economic activity in the US has slowed and evidence continues to point toward a recession. However, with inflation becoming uncomfortably high for the Federal Reserve, the markets are increasingly betting that the FOMC will not cut rates again on April 30 and this has underpinned the dollar strength we’ve seen over the past few days. Looking ahead, Friday’s University of Michigan consumer confidence index may not be much of a market-mover, as it is simply the final reading and the index will likely remain near 26-year lows.