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http://biz.yahoo.com/ap/080129/durable_goods.html

Durable Goods Orders Rise by 5.2 Percent

Tuesday January 29, 9:10 am ET
By Martin Crutsinger, AP Economics Writer

Orders for Big-Ticket Manufactured Goods Jump by Largest Amount in 5 Months

WASHINGTON (AP) -- Orders to factories for big-ticket manufactured goods soared in December by the largest amount in five months, welcome news for an economy buffeted by talk of recession.

The 5.2 percent increase in orders was a surprise finish for the manufacturing sector at year's end -- a segment of the economy considered to have had a poor year.

The increase in orders, as reported Tuesday by the Commerce Department, was far larger than had been expected. The strength came from a big increase in demand for commercial aircraft, but even excluding the transportation sector, orders posted a solid 2.6 percent gain.

The December orders increase was more than double what had been expected. Analysts were looking for a much weaker performance, given that a key gauge of manufacturing activity had fallen to the weakest reading since April 2003. The Institute for Supply Management manufacturing index dipped to 47.7 for December. Any reading below 50 is considered recession territory for manufacturing.

The unexpectedly big jump in December closed out a lackluster year for manufacturers. Orders for the total year managed to rise by just 0.97 percent following much bigger increases of 6.31 percent in 2006 and 9.45 percent in 2005. It was the poorest showing since orders actually fell by 3.17 percent in 2002, a year when the country was still struggling to emerge from the 2001 recession.


I'm curious if the lower dollar helped boost orders in December. It certainly seems possible given the boost it has given other areas of the economy. People around the world can finally afford to purchase U.S. goods and it certainly seems likely that the longer the dollar stays around where it is the more exports the U.S. will have. My Dad's business has all of a sudden seen a rise in international orders, and another local business has also been receiving more orders from outside the country.

I've never really been able to tell if the lower dollar is necessarily a good or bad thing. I don't think it's a terribly bad thing, but given the nature of how it got to where it is I wouldn't say it's good for the economy in the long run (the Fed has been printing a lot of money). It's hard to say (as with everything else).

David K
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I'm curious if the lower dollar helped boost orders in December. It certainly seems possible given the boost it has given other areas of the economy. People around the world can finally afford to purchase U.S. goods and it certainly seems likely that the longer the dollar stays around where it is the more exports the U.S. will have. My Dad's business has all of a sudden seen a rise in international orders, and another local business has also been receiving more orders from outside the country.

I've never really been able to tell if the lower dollar is necessarily a good or bad thing. I don't think it's a terribly bad thing, but given the nature of how it got to where it is I wouldn't say it's good for the economy in the long run (the Fed has been printing a lot of money). It's hard to say (as with everything else).

David K


The lower dollar does stimulate sales of US made goods because an adverse exchange rate is a tax on a purchase. As a Canadian I can buy stuff made in the US a what is essentially a discount and if you look at the stats of Canadian/US trade you’ll see more Canadians are buying from the US.

One other thing. I don’t know if you’ve come across this metric, David, but it is extremely interesting: US goods shipped overseas are growing lighter and more expensive per item. Once the US was a world leader in shipping pig iron and steel, now not so: the US imports pig iron and exports specialty steels (of which now the US is the world leader). Essentially, while commodities have value, the US taking these commodities and enhancing the value is what the US does well. Its one reason why US made production machinery sells in export: China’s growth is also because China imported production machinery from the US.

And, with a lower dollar, more of this is being sold overseas. As one Canadian economist said recently, with the lower US dollar Canada can increase its productivity through improved machinery made in the US.

Part of me thinks about the Yukon gold rush and who actually made money in the gold fields and it was those supplying the means to extract gold. So the US sells what are essentially the picks and shovels of production.

As US exports grow lighter the value of these is high. Back in the mid 1980s I invested in Microsoft because of this view of lightness. How much weight of a CD is the program on it? Nada. So my investments have trended in that way. I bought Garmin not because of the GPS units themselves but the programming that made them useful.

See my drift? Sure, commodities can be a good investment since these commodities are needed as in supply and demand yet those who take these commodities and add value (to make them lighter) will, my view, be the better long-term investment.

What are your views on this?

MichaelR

PS: What business is your Dad in?
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Hi Michael,

I was not aware of that trend with U.S. exports which is very interesting indeed. I think a lot of people who complain that the U.S. imports too much from China don't realize that it was U.S. innovations in technology and industry that allowed those countries to get to where they are in the first place. It will be interesting to see what areas of U.S. exports pick up with the lower dollar. Productivity and exports are already at record highs here, and it should definitely continue to get a boost with the lower dollar.

I absolutely agree with you that looking for the suppliers/innovators is the way to go. And in the investing world, those types of companies tend to go unnoticed by Mr. Market creating good investment opportunities. It's why I like a company like Landec who has a quality product that they've been developing for years that may entirely take away the need for ice in food shipments. Businesses want to save money, and in the long run technology innovations and improvement is the best way to increase efficiency and cut costs.

Another business that was along these lines with Navteq; you heard of them? They actually supplied the map data to places like Garmin, Yahoo!, Google, etc., and it was my best investment (I think it's been my best-performing investment to date). Unfortunately, Nokia is in the process of buying them out today. I guess you could say Navteq supplied the data to Garmin whose expert programming transformed the GPS into a great device.

If the U.S. smartened up and lowered the corporate tax rate, I think we'd see a boom in exports pretty quickly. Even with our high tax rate our exports and production are at record highs, I can't help but think if you brought that tax rate down you'd see a burst in productivity and new businesses. But that's getting away from the main topic.

PS: What business is your Dad in?

Not your typical, everyday business: meditation benches. Here's his web site: http://meditationbench.com/

By normal standards it's a pretty small business, but over the past couple months it's been picking up at a very quick rate. And the lower dollar has, most likely, helped with international orders as well. Two weeks ago he got an order from Hong Kong and just recently he shipped one out to Sweden.

Anyway, I'm curious to see what happens with this all and how it boosts the economy. It certainly isn't being mentioned by the media or too many analysts either as a potential boost, so they may be in for a nice surprise. :-)

Best,

David K
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