Durable goods orders and shipments posted sharp increases in October, defying recession fears, according to data from the Census Bureau on Wednesday.
The increases in durable goods spending, in a month of falling prices, most likely understated the strength of private investment.
New orders rose by 1% in October, while core orders, which exclude transportation and defense, rose by 0.8%. Orders for capital goods, a proxy for future business investment, rose by 0.7% on the month.
The increases most likely understated how much private investment bounced back in October as durable goods prices fell on the month.
Core capital goods shipments, a proxy for current investment in gross domestic product calculations, rose by 1.3% on the month, suggesting another strong quarter of growth for the nonresidential component of GDP.
In a separate report from the Bureau of Labor Statistics, new claims for jobless benefits rose by 18,000 last week to 240,000, the highest since early August.
After a brief period of trending downward from August to September, new claims have picked up in the past two months, signaling an increase in layoffs as the labor market has cooled.
Last week marked the third week in a row that new claims were above the pre-pandemic level of 218,000.
It is unclear whether the upward trend will last as the holiday season, which often comes with a lot of fluctuations in the data regarding new claims and layoffs, approaches. But there is reason to believe that the labor market is cooling off significantly as more businesses begin to freeze hiring, and many have announced big layoff plans.
As a potential recession looms, initial jobless claims are one of the most important leading predictors. We believe it remains too soon to sound the alarm as new claims are still far below 350,000, our threshold for a recession call.
But it is important to keep in mind that the U.S. economy often falls into a recession quite rapidly, with little notice. We don’t expect a spike in layoffs and the unemployment rate until the second half of next year, when the economy is likely to descend into a recession.