Economic Data Suggests a Double Dip, but Don't Bet Against Stocks Just Yet

Double dippy enough for you? Orders for durable goods - machines and equipment presumed to have long working lives - were up a benign-looking 0.3 percent in July, according to a Commerce Department announcement Wednesday. Orders for capital goods, however, were down 8.0 percent.

Theresa Chen, an economist at Barclays Capital, laid out the cold, hard facts in a note to investors:

"The fall in this category was fairly broad based, with machinery orders down 15.0 percent and computers and related products down 12.7 percent. . . . All in all, today's report represents a very soft start to [the third quarter]; the decline in core capital-goods orders was the sharpest since January 2009. There may be some positive payback in August, but growth in core capital orders and shipments is likely to be significantly weaker than [second-quarter] readings of 30.9 percent and 17.5 percent, respectively."
Capital goods are items that are used to make the products companies hope to sell to the public, so the plunge suggests that businesses are girding for a much softer economy.

Things are hardly better on the home front, either. For the second day in a row Wednesday, an indicator of the health of the housing market came in at the worst level since before statisticians first roamed the earth. Sales of new homes showed a 12.4 percent drop between July 2009 and July 2010, a day after a 27.2 percent year-on-year decline in sales of previously owned homes was reported.

These numbers read like ingredients in a recipe for a double-dip recession, although the woeful figures of previous months might suggest that the first dip never ended. The parade of grim data has led to calls for a double dip in stocks, too, either a steep correction or a new bear market or full-blown crash (an ad that Google keeps steering into my Gmail account speculates on the prospect of a crash on Aug. 31, helpfully pinpointing to the day the sort of event that occurs maybe half a dozen times each century).

So many commentators seem to be forecasting a decline in stocks, with the averages down 15 percent or more already, that some have been forced to acknowledge that a rally might be the better contrarian call. Yet after taking due note, they reject the idea, offering a vague variation on "this time it's different."

Patterns in the markets often repeat themselves because people expect them to stop working. That may be happening here. The stock market was little changed Wednesday afternoon despite the awful housing and durable-goods reports.

The throng of bears may turn out to be right, but maybe not right now. If a decline is on the way, there's a good chance it will only occur after a bounce that shakes the bears' faith and causes them to turn bullish for real.