Today the Census Bureau announced that durable goods orders in January fell by -4%, the most in three years. Timothy R. Homan writes in Businessweek, “The expiration at the end of 2011 of a tax incentive allowing full depreciation on equipment purchases may have prompted a slowdown in investment at the start of this year.”
Drops in orders were most apparent in the types of goods businesses would buy and depreciate under normal circumstances. Homan continues “Today’s report showed bookings for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, decreased 4.5 percent, the most in a year…Orders slumped 10.4 percent for machinery, the most in three years, and primary metals demand dropped 6.7 percent…Demand for transportation equipment fell 6.1 percent, restrained by a 19 percent plunge in civilian aircraft orders. Boeing Co., the largest U.S. aircraft maker, said it received 150 orders last month, down from 287 in December.”
Government tinkering with accounting rules cannot create long-term real GDP growth. It can only inefficiently manipulate demand creating spikes and subsequent give back. Former presidential economic advisor Austan Goolsbee spoke to the futility of such schemes in an October interview on the Morning Joe program. He said, “If you look at Cash for Clunkers or the first home buyer tax credit, they were geared to trying to shift [recovery] from 2010 into 2009. Given it’s taken this long [to recover], I don’t think you would do that short-run stuff.” Well said.