U.S. output downshifted in February, but upturn seems possible

The U.S. Commerce Department reported yesterday that orders for durable goods* were down 1.4% for February, following a slight drop in January. The data suggest that businesses are still generating relatively weak demand for big-ticket items, putting them on pace to post a weak first quarter overall. Durable goods numbers have fallen every month since their peak in August 2014.

The Commerce Department’s report is not all negative. Low oil prices, despite their effects on energy companies, should eventually flow through to the consumer. With gasoline prices down more than $1.00 a gallon during the past year, consumers should slowly accumulate more disposable income, which could generate domestic growth.

Going forward, we think it’s fair to assume that the second quarter could bring better results. For starters, the overhang of a severe winter season could potentially start to lift, with colder-than-normal temperatures having weighed on production. Furthermore, February saw the impact of supply shortages caused by labor strikes at West Coast ports, while the strength of the dollar made exports that much more expensive for our international trading partners. We hope these effects will be transitory; otherwise, the U.S. could continue to run a gross domestic product (GDP) growth rate of approximately 2%.

*Non-defense capital goods, excluding aircraft

GDP is a measure of all goods and services produced in the country.

The views expressed represent the Manager's assessment of the market environment as of March 27, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Visit archive Visit archive Visit archive

Notes from the desk