Soft Durable Orders, Scared U.S. Consumers Summon Hibernating Bears

Durable orders fell 18.2% in August, causing a large stock selloff in the United States as weak consumer confidence signals a decline in aggregate demand could drag down economic growth.

The Commerce Department announced a plunge in August’s durable goods orders after seeing those same orders rise 22.5% in July, signaling growing uncertainty amongst retailers and manufacturers. The volatility in durable goods data is unusual, and may indicate conflicting views about how strong America’s economic recovery has been.

Durable orders fell 18.2% in August, causing a large stock selloff in the United States as weak consumer confidence signals a decline in aggregate demand could drag down economic growth.

The Commerce Department announced a plunge in August’s durable goods orders after seeing those same orders rise 22.5% in July, signaling growing uncertainty amongst retailers and manufacturers. The volatility in durable goods data is unusual, and may indicate conflicting views about how strong America’s economic recovery has been.

Weak Shipments, Capital Goods Demand

The Commerce Department saw shipments falling 1.5% in the U.S. to $246.1 billion, after increasing 3.7% in July. The decrease was due mostly to transportation equipment, which fell after two consecutive monthly increases, with total orders falling 5.1% to $72.5 billion. Declining shipments suggests weak retail trade on diminished consumers’ spending power.

Capital goods also saw a large fall, particularly in nondefense orders, which fell 36.3% to $86.8 billion. Because capital goods are often used as investments for consumer-facing activity, the decline suggests companies are preparing for diminished consumer demand. Meanwhile, defense orders increased 5.4% to $8.8 billion as greater global uncertainty and tensions in Ukraine and Asia drove demand for military equipment.

Consumer Comfort Falls

Seasonal optimism in the summer may be ebbing in the autumn as a recent survey suggests Americans are increasingly worried about their financial future.

According to the Bloomberg Consumer Comfort Index, consumers feel that their economic situation has deteriorated and they say they are less likely to spend much on goods and services, thanks to a sense of poor job opportunities, low income growth, and few investment opportunities.

The Bloomberg CCI fell to 35.5, its lowest level in nearly four months, while survey respondents said their personal financial situation remained weak and was likely to become weaker. According to Bloomberg, the index is unlikely to rise unless job growth and wage gains encourage the American consumer to spend more.

While Americans with incomes below $50,000 were more pessimistic, respondents earning more than that level said that stock market gains had improved their confidence in recent weeks. Unemployed Americans reported extreme discouragement in the job market, with responses lower than at any point since February 2011.

Greater Volatility, Falling Stocks

The disappointing signals from durable goods orders and consumer sentiment caused stocks to plummet on Thursday, falling over 1% in early morning trading and staying near all-day lows throughout the trading day. The VIX, which measures volatility in the S&P 500, soared to over 16 in mid-day trading, its highest point since early August.

Volatility in the S&P 500 has remained at historic lows throughout most of 2014, falling to 10.28 at its lowest point and remaining below 14 for most of the year. Federal Reserve Chairman Janet Yellen has repeatedly warned of too much complacency in equity markets, urging investors to prepare for rising interest rates on bonds that could cause stock prices to fall.