What the Latest Economic Reports Say About the Recovery

Last Updated Sep 25, 2009 4:50 PM EDT

Editor's Note: Economist Mark Thoma is guest-blogging for The Macro View this week.

There are two reports out today that continue to raise caution flags about the strength of the recovery. First, durable goods orders for August were down 2.4 percent, the second decrease in the last three months. This was mainly due to falling sales for aircraft. When the transportation sector is excluded, orders were only down slightly. The same report notes that unfilled orders are also down.

On a slightly more positive note, companies also continued to reduce inventories of durable goods that built up as demand weakened in the recession. Once firms are done shedding accumulated inventory, they will begin replacing sales made out of inventory and that should help with economic growth. While it appears we are getting close to that point, these numbers indicate we are not there yet.

The other report released today was on new home sales. Sales of new homes rose to 429,000 in August, but the increase was less than many analysts had been expecting. But, more encouragingly, the inventory of unsold new homes is fell to 262,000 representing a supply of 7.3 months at the current sales rate. That amount of inventory is getting close to normal inventory levels.

Overall, these data continue to raise questions about the strength of the recovery, though the new home sales are a bit more encouraging than the other data. These reports are not signaling that the recovery will stall, or that we will fall back into recession, though that's always a possibility, but they do raise questions and indicate that the climb back to normal is likely to be slow.

Update: Data on consumer confidence were also released today, and the outlook of consumers is improving. This is a positive sign but, unfortunately, the link between consumer confidence and future economic conditions is not very strong, so this does not overturn the concerns that other recent data have raised about how robust the recovery will be.