A few months ago Business Insider posted a commentary with the attention-grabbing headline:DAVID ROSENBERG: Here’s Your Big Red Flag That We Could Be Heading For Recession. Rosenberg has frequently included CAPEX among his various recession indicators, but he focuses on a specific manipulation of the data: the year-over-year three-month moving average.
This morning the Census Bureau released the October Durable Goods report for data through December. The CAPEX referenced by Rosenberg is the Manufacturers’ New Orders: Nondefense Capital Goods Excluding Aircraft data series, which is conveniently available in the FRED database. The data goes back to February 1992, so we only have two recessions during this timeframe to evaluate CAPEX as a recession indicator. Here is a look at the monthly data.
Here is a year-over-year percent change of the series.
And, finally, the chart below is the YoY of a 3-month moving average of the data. This a logical manipulation for highlighting the broader trends in this highly volatile series.
Indeed, the CAPEX 3-month MA trended down from March to September of this year, when it hit an interim low of -6.6%. It has since risen to -3.3%, which is the level we saw at the onset of the 2001 recession and lower than the -1.1% at the start of the last recession.
CAPEX 3-MA: Cherry Picking by Recession Doomsters or Something to Really Worry About?
Ultimately my sense is that this data series manipulation (the YoY 3-month MA) has an insufficient track record to be considered a persuasive recession indicator. N=2 is not enough to make reliable recession probability forecasts. But the CAPEX trend is an attention grabber, and I will continue to monitor it for the next several months.
Here are my routine monthly Durable Goods updates:
The next Durable Goods update, including CAPEX, is scheduled for February 27th.
Images: Flickr (licence attribution)
About The Author
My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.
My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.
Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.
Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.