Tuesday, February 28, 2012

Ugly number, good news

The chart below shows the average monthly pace of change in real capital goods new orders. The latest report has just been released and the number is ugly.

However, given what happened during past expansions, we are very close to an inflection point followed by an acceleration of this indicator. Thus, good news most probably lie ahead, a fact that is certainly not bearish for the stock market.

A negative development would only be a drop to about -2.5, which has been associated with recessions. For now, the economy is still expanding.

1 comment:

LOTrader said...

Interesting point of view.

Still, it might take a few months before a turn.