Economic News Blog
Posted by: Steven Kline, Jr. 1. February 2013

December Consumer Durable Goods Spending Booms - Up 9.7%

According to the Bureau of Economic Analysis, December 2012 durable goods consumer spending was $1,434 billion real dollars (seasonally adjusted at an annual rate). December marks another new all-time high in real durable goods consumer spending. Compared to December 2011, this December's spending was up 9.7%. This is the fastest rate of month-over-month growth since January 2011 and is almost double the average historical growth rate. The annual rate of growth now stands at 7.8%, having accelerated for each of the last eight months. 

Two important leading indicators for real durable goods consumer spending are real personal income and real household debt flow. As you can see below, both of these leading indicators are pointing towards accelerating growth in durable goods consumer spending in the next six to 12 months.

 

However, a third leading indicator (the Fed funds rate) for real durable goods consumer spending is indicating a significant slowing in the rate of growth. Because the Fed funds rate has been at and will stay near zero for the foreseeable future, it is best to look at the real Fed funds rate, which subtracts the rate of inflation from the Fed funds rate. Ever since the economy has been in a zero interest rate environment, the real Fed funds rate has been a good leading indicator of real durable goods consumer spending. The chart below shows that the real Fed funds rate is increasing rather quickly year over year (moving down on the chart). Because the real interest rate is rising it means that durable goods are relatively more expensive since many of them are bought with credit.

Real durable goods consumer spending (or its sub-components, such as motor vehicle and parts spending) is a good leading of industrial production for a number of durable goods end markets: automotive; custom processors; electronics, computers and telecommunications; metalcutting job shops; and ship building.

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