Jakarta, CNBC Indonesia – The United States economy (US) indicates a recovery signal from a surge in durable goods order data (durable goods) manufacturing sector, on Monday (7/27/2020) morning local time. False signal that is too early?
The US Department of Commerce reported that orders for durable goods – with a minimum shelf life of 3 years – rose 7.3% in June, after briefly rising 15.1% in May. Core goods orders, which exclude aircraft orders and the main weapons system (defense equipment), rose 3.3%.
Automotive orders and spare parts jumped 85.7% in June, after in May it rose 28.28%. The increase in orders also occurred in metal goods, machinery, electrical equipment, and communication equipment although it was still below pre-pandemic levels.
Data on durable goods orders is one indicator of US economic stability. The higher the order number, the economy is estimated to be still expansive because the producers of goods are sure the conditions will be fine.
Conversely, when a recession lurks, usually business people and also the community put the brakes on their spending. Business actors will cut investment costs on capital goods, while the public reallocates spending on daily consumer goods.
However, it should be noted, this order data is very volatile because order cancellations can take place at any time following the manufacturing company’s expansion strategy.
In addition, orders for durable goods are also influenced by stimulus and economic easing. Ahead of the financial crisis in December 2007, durable goods orders rose thanks to tax cuts and the US central bank’s loose monetary policy.
However, that number continues to decline until it reaches its lowest level (since 1996) in April 2009 after the crisis subprime mortgage loan beat up the US economy during 2008 and subsided in the second half of 2009.
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Source: U.S. Census Bureau- – |
Currently, the US government continues to release stimulus, while the US central bank has cut interest rates near zero percent at 0% -0.25%. The Fed also continues to buy up US government bonds and private bonds to supply liquidity in the market.
The latest stimulus will emerge in the next few weeks, after Sunday Finance Minister Steven Mnuchin said that the Republicans had finalized the stimulus package, which is worth US $ 1 trillion.
White House Economic Adviser Larry Kudlow gave a leak of US $ 1,200 in cash compensation distributed to those in need. As long as public consumption is maintained, the manufacturing sector continues to operate to meet existing demand.
To ensure that this signal is not a false alarm, we need to monitor trends in the order for at least the next month to see if businesses are still worried about the second wave of corona virus spread.
If the second wave is believed to be safe, orders for capital goods will continue, indicating the economy will roll towards expansion with the shadow of recession increasingly fading.
CNBC INDONESIA RESEARCH TEAM
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