Core CAPEX as a Recession Indicator
Guest post by Doug Short.
Earlier this month 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. I generally find Rosenberg’s chronically bearish commentaries of interest and in this case by the fact that he’s reported to view CAPEX as a recession indicator.
This morning the Census Bureau released the October Durable Goods report for data through September. 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 complete series. This is the data manipulation used by Rosenberg to support his recession alert.
Indeed, the CAPEX 3-month MA has been trending down since March of this year. In fact, the month-over-month data has been trending downward since its interim high on December 2011.
Ultimately my sense is that this data series manipulation (YoY of the 3-month MA) has an insufficient track record to be considered a definitive recession indicator. N=2 is not enough to make reliable recession probability forecasts. But CAPEX is definitely a troubling indicator that I’ll continue to watch for the next several months.
Here are my routine monthly Durable Goods updates:
The next Durable Goods update, including CAPEX, is scheduled for November 27th.