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Capital spending remains strong

January capital goods orders fell by a much-bigger-than-expected 6.9%, but you can't take that number at face value. December orders were revised upwards by almost 3%, and the first month of every calendar quarter has a strong tendency to show declines that are reversed in subsequent months. Using a 3-mo. moving average solves the seasonal problem, and that's what the chart shows: orders continue to increase. In fact, on a year-over-year basis (which avoids seasonal problems altogether), orders are up 14%, and that's a very strong showing. Much stronger, for example, than what we saw coming out of the 2001 recession. Strong investment spending reflects growing business confidence, and it also sows the seeds of future productivity gains.

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