Interview: Durable goods
SWISS RE --- KARL, KURT --- Chief Economist
>> the federal reserve’s latest summary of economic conditions shows that the economy, while growing, slowed a bit. the beige book, as it’s known, says manufacturing expanded in all districts while consumers restrained their spending at stores and auto dealerships. the anecdotetal summary matched fed chairman alan greenspan’s view that the economy is passing through a periods of, quote, softness. well, staying with the economy, durable goods orders rose last month, but it was only half the increase that most economists expected. the commerce department also revised may’s number lower, cutting it in half down to just .9%. if you back out cars and other transportation equipment, orders declined for the third straight month. communication equipment orders fell more than 4% and for more on the economy, we bring in kurt carl, he is the chief u.s. economist at swiss re. so, let’s get right into it and talk about these numbers here. your reaction here today. first on the durable goods.
>> well, a little disappointing. but on balance, we’re still very strongly up compared to a year ago and it was a very strong month, march, that lifted it quite high. so we’re still above earlier in the year.
>> what do you take away when we see something like communications in one single month falling 4%. that is a sharp monthly decrease.
>> well, we’ll look to see whether it gets revised later. that is one thing you look for. and often they have volatility, these orders, particularly the orders.
>> well f you look at the trend that we just showed there in terms of three consecutive months for the core number without autos and transports, is there reason for concern here? or is it just summer when factories shutter and things slow down?
>> i don’t think it’s summer, particularly. it’s predominantly just volatility in this particular index, which we’ve seen in the last few months very volatile. and sometimes we go through a patch like that. but transportation orders still count, too, you know.
>> so kurt karl not concerned by the data --
>> no.
>> i put up a graphic while you were talking. this is durable goods month on month, versus durable goods year on year. you can see the orange line is the year on year percent, the last move from a year ago is about 11%. and then, of course, we had a .7% increase month on month. what is that telling us in is that valuable information that often gets overlooked?
>> sure f. you look down the line of the report today that had the year on year increases, virtually all of them were positive. one negative. defense goods. but, you know, that has been very strong last year, obviously. so, it’s―as far as the manufacturing sectors go, everything is great. everything is up strong, virtually all of them were double-digittings as well. that is the way the manufacturers look at it and they have a high level of confidences.
>> let’s just get through the beige book real quick. any thoughts, anything jump out? >> some slowing, but modest improvement. pretty much across the board. so, we’re not in any kind of problem at this point in my expectations.
>> ok. let’s talk about your research. your july note, of course, it’s probably a month old now, but one of the things that jumped out at me said the stock market is fairly valued as of the end of 2003.
>> that hand gone much anywhere.
>> but why would that matter presumably? and the point is that making a crash less likely. is that really relative whether the stock has gone anywhere?
>> the stock market is not overvalued at this point. and you have a concern when it is in that kind of situation. it might crash. unlikely to crash if it’s fairly valued. but for asset managers, of course, you’d be neutral if it is fairly valued rather than overweight equities or underweigh equities.
>> yet again, we are coping with oil hitting a record high. almost $43 a barrel, the nymex today. do you think that’s going to last? if so, what affect is it going to have? we mentioned $10 a barrel, every $10 equals half a point off of g.d.p.
>> yeah, that’s right. yeah. the―hard to say, obviously. a lot of factors on it. we have enormous problems in iraq, of course. but saudi arabia affecting the market , not with disruptions in supply, but terrorist attacks, nigeria with problems and the civil war and venezuela with problems. hard to forecast.
>> i want to interrupt you for one second because we have headlines crossing on charles schwab, the company saying it will close 53 branches around the country. and that they’re going to fire 186 workers. it’s the seventh cost-cutting measure since 2001, this according to a spokesman on a telephone call. so, that’s charles schwab and, of course, we did just see the shakeup in management with the name sake and founder coming back in just last week to take over the reigns of that company. now, we pick it up. sorry to do that.
>> that’s ok.
>> news always. 30 seconds. talk to me about your forecast for what we’re going to see for g.d.p.
>> we’re going to see about 4% end of this week and that’s a little bit better of the consensus of what i’m expecting. it wasn’t really that bad of a quarter. as you see, we got some uptick towards tend. my collations, this was quite a substantial improvement for the quarters in business equipment. so, we’ll look at 4% and going ahead that’s what we’re going to get. not a bad number.
>> very much appreciate you coming in here today. that’s kurt karl, chief u.s. economist at swiss re. boeing shares on the up today after the company raised its forecast for 2004 and 2005. that story coming up next.
