Merk Investments: Durable Goods

Orders for durable goods in August saw outsized declines of -4.5% on the back of a -38.1% decline in demand for non-defense aircraft. The ex-transportation component did not fare much better, falling -3.0% and the ex defense estimate declined -5.0%. Orders for capital goods fell -5.7%, transportation -8.9% and defense orders climbed 9.4%.

Demand for computers and electronics were up 1.9%, but were offset by declines across the board in just about every category. Orders for electrical equipment fell -2.2%, machinery -6.2%, primary metals -9.3% and fabricated metals -0.6%.

Shipments of capital goods declined -3.5%, and the critical shipments of capital goods non-defense, ex-aircraft fell which feeds into the calculation of GDP declined -1.7%. Orders for non-defense capital goods, ex-aircraft which is a forward looking measure of future business investment declined -2.0% for the month.

After three decent months of orders for durables, the decline in demand for civilian aircraft and basic metals were the primary catalysts for the outsized decline. Perhaps more ominously, the -2.0% decline in non-defense, ex-aircraft in August suggests that firms are pulling back on investment. The data supports Fed Chair Bernanke’s testimony before the House Financial Services committee that the ongoing issues in credit markets are likely to extract a hefty price on business investment.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: Durable Goods: August 2008