US Loses Growth Momentum

US labour market statistics continue to imply a robust expansion but the data on manufacturers new orders released last week showing the seventh consecutive monthly decline are cause for concern about the growth momentum. Additional pressures on already weak investment spending have been mounting. The fall in oil prices has caused a reduction in the amount of spending on machinery and equipment used by the sector. The stronger US dollar would also have crimped demand for US goods from overseas buyers and import competing domestic industries. The chart shows the history of durable goods orders (excluding defence purchases and aircraft) since 1995 and the associated movements in the S&P 500. Throughout the cycle, historically weak investment numbers or lulls in momentum have been taken as a sign the Fed would add support for the market or delay expected rises in interest rates and the market has continued to move ahead. A similar expectation persists. Nonetheless, a quick reversal of the recent capital orders decline is now necessary to avert comparisons with earlier cyclical declines and their associated equity price impacts.