Weak Durable Orders Suggest Problems Brewing for U.S. GDP

In my previous article, I talked about the U.S. economy and how it will likely stall this year. The second estimate for the second-quarter real gross domestic product (GDP) growth comes out tomorrow, and I’m not that optimistic. In fact, I’m becoming more pessimistic towards GDP growth going forward.

If you don’t agree, then just take a look at the durable goods orders for July, which showed a horrible decline of 7.3% in that month alone, based on information from the U.S. Census Bureau. The reading was much worse than the 4.5% contraction expected by Briefing.com and the 3.9% advance in June. Even when you strip out the volatile transportation element, orders fell 0.6% versus an expected gain of 0.4% and the 0.1% advance in June. This doesn’t bode well for GDP growth.

A closer look showed shipments of durable goods declined for the third time in the past four months and unfilled orders have risen in five of the past six months. Again, this doesn’t support GDP growth.

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The readings fail to support an economy that is growing; in fact, the numbers suggest that corporate America may be stalling and about to face many hurdles ahead, which will surely have an impact on America’s GDP growth.

Consumers and companies are not spending. It’s simply because both groups continue to see potential potholes forming ahead. For the consumer, the economic recovery remains fragile, and with the jobs market continuing to show high unemployment and weak wage increases, I’m sure this group is nervous. Yet when companies hold back on spending, it is a major red flag that suggests corporate America will be witnessing some possible turbulence ahead.

So, despite the record-highs of the stock markets, the underlying situation clearly is not as good as the rise in stocks would warrant—and this could spell disaster on the horizon.

What this means is that the Federal Reserve may have an excuse to continue to print money and prop up the economy and stock market. A poor GDP growth number tomorrow will also push the Fed to hold back on its planned tapering until October or even December.

And while I doubt the United States will follow the route of the eurozone and fall back into a second straight recession, I do feel GDP growth may likely stall in the second half of this year, based on some of the economic readings we have been seeing.

As an investor, this means you should take some money off the table and look for a possible bigger stock market correction on the horizon to buy on weakness.

This article Weak Durable Orders Suggest Problems Brewing for U.S. GDP was originally published at Investment Contrarians