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US Factories Crushed By Strong U.S. Dollar

Economics / US Economy Apr 25, 2015 - 12:35 PM GMT

By: John_Rubino

Economics

Government statistics are always suspect, for at least one obvious reason: Modern economies are way too big and complex to measure in real-time. So virtually every number is revised in the months after its release, frequently to the point of saying something very different. But by then lots of new data has come out and no one cares about the old numbers.


So to the extent that any government report is trustworthy, it's the trend and not the data point that matters. And lately a whole slew of data points have been coalescing into downtrends that should be taken seriously. Today's example is durable goods, which measures the health of US factories making big, long-lasting things like cars, planes and refrigerators. Bloomberg this morning put out a good analysis showing how "core" capital goods orders -- for things things that don't bounce around by double-digit rates every month -- is now firmly in a downtrend, featuring the following charts:

The obvious explanation is that the dollar's exchange rate is way up, making US goods more expensive and foreign goods cheaper and leading the rest of world to buy less from us. Domestic factories are seeing their order books shrink and are as a result producing less. They're also hiring fewer and/or firing more workers. And the downtrend seems to be gaining momentum. Core orders in particular turned down in mid-2014 and are now in free-fall.

Since the rest of the world isn't likely to start buying larger quantities of US trains, planes and automobiles anytime soon, the trend probably won't reverse without a favorable change in the terms of trade. That is, the dollar has to go down before US factories will pick up. And that won't happen while the Fed is promising to raise interest rates (which would, other things being equal, boost the dollar).

So this looks set to continue until the Fed springs a surprise. And the longer that takes the bigger the subsequent reversal.

By John Rubino

dollarcollapse.com

Copyright 2015 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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