In retrospect, in 2007-2008, the divergence between US total durable goods orders and non-transportation orders signaled a deteriorating outlook for equities. Between January and October 2007, with a backdrop of rising stock prices, total durable orders pulled away from non-transport durables. Then by November 2007, stocks took notice of this divergence and began falling. With today's report on durable orders, we may see the same pattern playing out again. In the chart below, the dark blue line is total durable orders and the light blue line is non-transport durables. While total durable orders made a new cycle high today, non-transport durables are slightly down from December 2011.
One explanation for the performance is the taper. Below we plot the 3-month change in the Fed's total assets against the 6-month change in non-transport durable orders. With non-transport durable orders down 1% over the last six months, perhaps the taper is already weighing on the economy.
