Core Capital Goods Orders Rose 1.6% in August. The Headline Read Zero.

EYES ONLY

SUBSCRIBER ONLY // DO NOT FORWARD WITHOUT PERMISSION

BLACKOPS
FINANCE

COVERT FINANCIAL INTELLIGENCE. INTERCEPTED DAILY.

MISSION BRIEF

Updated 1115 ET

August durable goods orders published at half past eight this morning. The headline was zero. The line underneath it was not.

New orders for manufactured durable goods were virtually unchanged on the month, against a calendar looking for a fall of 0.4%. Transportation did the damage. Transportation equipment orders fell 0.6%, with nondefense aircraft down 4.3% and motor vehicles down 0.6%. Take transportation out and orders rose 0.3%. Take defence out and they rose 0.1%.

Then there is the series a central bank actually reads. New orders for nondefense capital goods excluding aircraft, the cleanest available proxy for what companies are committing to spend on plant and equipment, rose 1.6%. The calendar had looked for 0.5%.

July was revised upward underneath it. The core capital goods figure published a month ago as 0.2% now reads 0.6%. The July headline, first reported at 1.1%, now reads 0.9%. The revision went one way on the capital line and the other way on the headline, which is the shape of the whole release in miniature.

The rest of the report is mixed and small. Core capital goods shipments, the line that feeds the investment column of gross domestic product, rose 0.6%. Total durable goods shipments fell 0.2%. Inventories rose 0.5% and unfilled orders rose 0.6%.

The curve had already moved before any of it. The ten-year Treasury note has been quoted between 5.17% and 5.19% this morning after a three-session sell-off, the thirty-year at 5.48% and the two-year at 4.91%. Yesterday this letter had the ten-year around 5.10%.

The reason the capital goods line carries weight out of proportion to its size is that it is not a survey and not an opinion. It is an order: a company signing for equipment that will be delivered and paid for months from now. Aircraft are stripped out because a single wide-body order can swing the series by itself, and defence is stripped out because that spending answers to a budget rather than to a hurdle rate. What is left is the private sector putting its own money down. It went up 1.6% in a month when the policy rate was on its way to 3.75%-4.00% and the ten-year was heading through 5%. Companies that expected this tightening cycle to break something do not sign those orders.

SPONSORED

[Act Now] 45 Farms. 10 Million Trees. $1.10 a Share.

Colombia’s coffee sector was decades behind the curve. The farmers weren’t getting much out of it. Neither were the people drinking it.

So Green Coffee Company bought the farms.

45 of them, FairTrade certified, with more than 10 million coffee trees planted across over 10,000 acres.

That makes them Colombia’s #1 largest coffee producer, vertically integrated in Colombia and running the whole thing from seed to sale.

The coffee coming off those farms goes out under Juan Valdez®, which they hold the exclusive U.S. and Canada distribution rights to.

Shares are $1.10.

Lock in the $1.10 share price by September 30th.

*Disclaimer: This is a paid advertisement for Green Coffee Company’s Regulation A offering. Please read the offering circular at https://invest.greencoffeecompany.com/. Timelines are subject to change. Listing on the NASDAQ is contingent upon necessary approvals, and reserving a ticker symbol does not guarantee a company’s public listing.

Under Regulation A, a company may change its share price by up to 20% without requalifying the offering with the Securities and Exchange Commission.

THE OPERATION

What one month of orders can carry

Three limits before anyone builds a thesis on 1.6%. This is the advance report, the first and thinnest estimate, and it moves. The proof is inside today’s own release: the July core figure was published a month ago as 0.2% and reads 0.6% now. A revision of that size on a series this small is the normal condition, not an anomaly.

Second, these are dollars and not units. The Census figures are nominal and are not deflated anywhere in the release. Core producer prices have been running at 4.7% over twelve months, so a single month at 1.6% is still a real increase by a wide margin, but any year-on-year comparison on this series is flattering itself, and this letter is not printing one.

Third, and most important, August ended before the Federal Reserve moved. These orders were placed by companies that had not yet seen a 3.75%-4.00% policy rate, because it did not exist. What August tells you is the condition the tightening arrived into, not the response to it.

With that said, look at what else has landed since this letter last went out. Yesterday it withheld August new home sales because the Census release page was still serving July, and handed readers July’s 607,000 as the benchmark instead. The figure is now confirmed. New single-family homes sold at a seasonally adjusted annual rate of 684,000 in August, up 6.4% on the month and the highest since the start of the year, against a calendar looking for 620,000. July itself was revised up from 607,000 to 643,000, so the benchmark this letter printed yesterday was already too low.

How it was achieved is in the price column. The median new home sold for $393,700 in August, down 5.8% from a year earlier. There were 483,000 unsold new houses on the market, 8.5 months of supply at the August selling rate against 9.0 in July. Builders moved more units by cutting the price, which is a different event from a housing recovery and should be read as one.

And the Kansas City Fed’s Tenth District survey, out yesterday at eleven, is the second business survey taken after the hike. Its composite index rose to 14 in September from 10 in August, its manufacturing index to 20 from 17, and its future composite stood at 19. No consensus number is given here because the two calendars this letter checked did not agree on one.

The Atlanta Fed’s GDPNow model put third-quarter growth at 5.1% at its most recent update, dated 17 September. That is a nowcast assembled mechanically from data already published. It is not a forecast, it is not a measurement, and it will be revised as the quarter’s own figures arrive.

Two days ago this letter carried the Richmond Fed’s composite at minus 2 and called it the first survey after the hike. Yesterday the Kansas City Fed printed 14. Same month, same question, opposite answers, and the temptation is to split the difference. Do not. Regional surveys sample different districts and different industries, and averaging two of them produces a number that describes nowhere. The durable goods release is the tiebreaker precisely because it is not a survey at all. Richmond asked manufacturers how they felt and got minus 2. Kansas City asked and got 14. The Census Bureau counted the orders those manufacturers actually placed, and they went up.

RULES OF ENGAGEMENT

The household is the one that is cracking

Watch the one series running the other way, which is the consumer. The University of Michigan’s preliminary September sentiment index came in at 47.8 on 11 September, against a revised 51.7 in August and described as the weakest since May’s record low. The final September reading publishes at ten this morning. No figure is claimed for it here.

Read the expectations rather than the headline index. Year-ahead inflation expectations in that survey jumped to 4.6% from 4.2%, the highest since June. The five-year measure edged up to 3.4% after three months at 3.3%. Sentiment sat 16% below February, before the Iran conflict began, and 13% below a year earlier. Expectations are the part of a consumer survey that a central bank treats as an input rather than as a mood.

Oil is the reason those expectations moved, and oil is also this morning’s relief. West Texas Intermediate traded around $92.55 a barrel, down about 2% on the day and about 2% on the week, and still more than 12% higher over the month. The fall came on reports that the United States and Iran are weighing a phased arrangement that could reopen the Strait of Hormuz and lift the blockade on Iranian ports. Nothing is agreed, Iranian officials are holding out for sanctions relief, and a barrel in the low nineties is not a resolved conflict.

Futures have eased a little on the meeting. The October increase is priced at roughly 67% this morning and December at better than 48%, against roughly 75% and better than 58% in yesterday’s letter. Those are market-implied probabilities, not forecasts, they moved on cheaper oil rather than on any data, and they will move again before the close.

Mark 30 September and mark it hard. August personal consumption expenditures, the index the Fed’s target is actually written on, publishes that morning. The last reading was July’s 3.3% core. No August figure exists today and none is given here. It is the last major release before the committee meets on 27 and 28 October.

The exposure is a committee that will reach 27 October with nothing in the data telling it to stop. Business investment orders accelerated 1.6% in August and July was revised up underneath them. New home sales hit an eight-month high, bought with a median price 5.8% lower than a year ago. The second post-hike regional survey came in at 14 where the first came in at minus 2. Core producer prices are still running at 4.7%. The only series pointing the other way belongs to the household: sentiment at 47.8 near a record low, with year-ahead inflation expectations up to 4.6%. That combination does not argue for a pause. A central bank that sees expectations rising while output holds up reads it as a reason to go again, and weak sentiment is the cost it has already decided to accept. The ten-year above 5.17% and the thirty-year at 5.48% are what that decision costs to finance. The household pays its share through a mortgage rather than through a bond.

END OF TRANSMISSION.

EYES ONLY

EYES ONLY

SUBSCRIBER ONLY // DO NOT FORWARD WITHOUT PERMISSION