Janet Yellen just took a roundhouse blow to the chin: July durable goods orders rose by an astounding 22.6%, and are up over 33% in the past year, thanks mainly to a surge in Boeing's aircraft orders. This virtually demolishes her meme that the economy is sickly and in need of ongoing, extraordinary monetary ministrations. We know that aircraft orders are quite volatile on a month-to-month basis, but as the graph above shows, the July jump in orders is unprecedented. Orders of this magnitude don't come from an economy that is struggling. This news reflects a global increase in confidence in the future of travel that is simply staggering, and historically cheap borrowing costs have undoubtedly contributed to the euphoria.
Capital goods orders, shown in the graph above, strip out the volatile transportation and defense sectors, and are a standard proxy for business investment. But even here we see that orders have increased by over 8% in the past year. A few months ago this series was moribund, reflecting a lack of business confidence in the future. No longer. Orders still have a ways to go before reaching new high ground in real terms, but at the current rate that is likely to happen within a few years, if not sooner.
This remains the slowest recovery on record, but the economy looks to be on solid ground, and very likely to improve with time. If I were a member of the FOMC I'd be sweating bullets right now. Easy money increasingly looks to have overstayed its welcome.
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