Implications: The plow horse economy continues to move forward. Orders for durable goods came in much better than expected in November as companies seem to be gaining more confidence. Although overall new orders were up only 0.7%, they were up 1.6% excluding the always volatile transportation sector. In particular, machinery orders, which fell rapidly this summer, were up 3.3% in November and have risen dramatically – at a 75.8% annual rate – in the past three months. Now, despite the summer's weakness, machinery orders are up 1.1% from a year ago. Meanwhile, shipments of "core" capital goods, which exclude defense and aircraft, were up 1.8% in November and were revised up for last month. Core shipments usually fall in the first month of each quarter and then rebound in the last two months. That has not happened in the fourth quarter despite all the economic uncertainty that remains surrounding public policy. That uncertainty will continue in the near term as lawmakers try to hash out an agreement to avoid the "fiscal cliff." If no deal is reached for a prolonged period, orders for durables are going to fall early in 2013 as the economy weakens, before rebounding later in 2013. If a fiscal deal is reached, we expect a continuation of the recent upward trend in orders and shipments. Monetary policy is loose, corporate profits and balance sheet cash are at record highs (earning almost zero interest), and the recovery in home building is picking up steam. All of these indicate more business investment ahead.
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