Summary
Given the fact that unless you've spent the last year in a cave in Afghanistan and have not as yet heard anything about the cascading effect the housing and subprime mortgage markets have had on the economy, this article points to the fact that it just might be getting worse vs better. Validation includes: 1)New orders for high priced manufactured goods dropped at the sharpest rate in 7 months in August. 2)Orders for durable goods fell by 4.9% against analyst forecast of 3.1%. 3)Orders outside the military sector for capital goods fell 0.7% in August after gaining 0.9% in July, a sign that growth is slowing in Q3.
Analysis
Although the original source article does not detail out specific companies in terms of suppliers or retailers, other recent news articles have highlighted the struggle more specifically over the first half of the year. Just to cite some specific companies who both buy and sell durable goods, consider that Lowes(not a big surprise given the housing stat issue) has already lowered expectations for the year and Home Depot continues to be cautious. More surprisingly, and surely indicative of just how really tough it is out there are solid quarterly and perennial players who had terrific fiscal years in 2006, also announcing either reforecasting earnings for the full year, i.e.., TARGET, as well superstar
companies like Staples announcing negative same store comps in Q2 and cautious forecasts for the final two quarters. Within the same sector, Office Depot stated on 9/11/07 that there would be a quiet period between 9/11 and 10/31 when Q3 earnings are announced(guessing here that they too, will be announcing revised Earnings as well as pullback of certain business initiatives such as new store openings and additional capital investments made in the 4 contract stationers they purchased LY in the US, China, Korea and Europe).
Furthermore, to validate the durable goods dilemma, both Staples and Office Depot have specifically alluded to the softer topline numbers in their earnings announcements in both Q1 and Q2 due to less than expected sales in furniture and consumer electronics, generally the first category "victims" in a soft economy that will try to squeeze one more year out of that old chair/desk or just a few thousand more pages out of the old inkjet even though it would be nice(in better times), to finally purchase that really great laser printer.
Hopefully, the US consumer will help jumpstart the economy heading into FY 2008 and come out spending heavily on Black Friday through Christmas. Yes Virginia, there will be a Santa Claus as my belief is that even in the toughest of years, the consumer and small business sector will find a way to put ig ticket items under the trees of loved ones and employees this year.
