US Durable Goods is the last major economic and potentially market moving data to be released before American traders go on an extended weekend. The market might be poised to take an overly cautious view of things, in light of the risks of being away for so long. Particularly considering the consensus is for a less than auspicious result.

That having been said, it appears that durable goods and consumer sentiment which is released around the same time, will show the widening divide between the US and Europe. The EURUSD has been on an upswing this month as investors price in less tightening from the Fed. But if the data points continue their current trend, the upward momentum for Fiber could start to stall.

Not All Spending is the Same

The conventional wisdom around durable goods is that they tend to fall when the economy is heading into a rough patch. That’s because businesses are less willing to spend if they think demand will fall off. But, the US is going through an unusual situation.

Inflation is coming down, but the majority of people are still unhappy with the economy. Despite the gloomy outlook among consumers, they are still spending as if the economy was doing great. Politicians like to point to the series of positive economic indicators, such as employment, GDP growth, among others, and are baffled why people are unhappy. Which in turn is affecting how businesses plan their future spending, with strong implications for whether the US manages a soft landing or not.

More Evidence of a Slowing Economy?

The unusual situation of strong consumer demand but uncertain outlook leads companies to buy durable goods “on demand”, as opposed to future planned growth. This obscures some of the predictive capacity of durable goods. Last month’s figure saw a large jump in durable goods, but a closer look at the data revealed that it was driven almost entirely by large orders for civilian aircraft.

Businesses are still catching up to demand that is returning from the pandemic, with the airline industry the largest indicator. Airlines are purchasing aircraft to meet existing demand, as they are still clawing back to pre-pandemic capacity levels. The threat of inflation remaining high in the near future means it’s convenient to lock in deals now. This might keep durable goods above the level that would be expected for generally weaker or weakening economic performance.

The Markets Are What Matter

Regardless of the reasoning by the business owners, what matters to the traders is how the market will react. So far, the dollar seems to respond to the traditional interpretation of the data. Meaning that it could see a boost if durable goods are above expectations, or weaken if there is a disappointment. But, it’s also important to know the comparables. Even if US durable goods disappoint a bit, it will still be better than many of its peers. Particularly in Europe, where data is pointing to the emergence of a recession.

October Durable Goods in the US are expected to fall 2.8% on a monthly basis, down from the 4.7% increase reported last month. That’s expected to be a reflection of Boeing’s orders drying up during the month after strong sales in September. Excluding that element, core durable goods are seen slipping to 0.1% compared to 0.5% prior.

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