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Weak January capex probably not a real problem

January capital goods orders were quite weak, weaker than weak expectations. The first month of every quarter is always weak, and this one was no exception. January '11 orders actually fell a bit more than they did this year. On a year over year basis, orders are up 5.9%, but over the past six months they are up only 1.3%. Is this a sign of an economy about to enter a recession? It could be, but a) it's too early to tell, and b) it doesn't jibe with so many other indicators of strength (e.g., a pickup in jobs growth, falling unemployment claims, strong car sales, strong corporate profits, an upturn in residential construction, good ISM service and manufacturing reports, an upturn in commodity prices). The January weakness was predicted by many analysts on the basis of the expiration at the end of last year of a tax incentive allowing full depreciation of equipment purchases, so that needs to be factored in as well.

While noting the recent—and largely explainable—weakness in business investment, the unusual strength in this indicator in recent years is still very impressive, so I'm willing to refrain from drawing any meaningful conclusions at this point.

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