Noted Economist Says You Should be Worried About Latest Durable Goods Report: Here's Why

Demand for durable goods (i.e. items that are expected to last for at least three years) is on the decline and a report released on Thursday shows that it has sunken to levels not seen since 2009 -- the height of the Great Recession.

"The Commerce Department said Thursday that total durable goods orders fell 13.2 percent in August. That's the biggest drop since January 2009 when the country was in recession. Aircraft orders fell by nearly 102 percent, pulling down the headline figure," the Associated Press reports.

Economists had originally predicted a decline of maybe 5 percent. Obviously, they were off by just a little.

"U.S. manufacturing has weakened since the spring. Factories have been hurt by weaker consumer spending and slower global growth that has cut demand for U.S. exports," the AP adds.

Okay, so what's the big deal? Maybe we shouldn't read too much into the data, right?

Well, according to economist David Rosenberg, there's a part of the report that should raise some red flags. If you look at the three-month moving average* of non-defense capital goods orders (or "core capex [capital expenditures] orders") excluding aircraft in Thursday’s durable goods report, you'll note that it was -4.1 percent in August.

(*A statistical method for identifying the direction of a trend.)

"History shows when the trend weakened to the level we see today, the economy was in recession 100 percent of the time," Rosenberg claims in his latest "Breakfast with Dave" note.

Furthermore, as Rosenberg notes, not only is the durable goods report obviously bad news for the manufacturing sector, but it also means bad news for the job market. You see, as the following chart illustrates, there’s an 83 percent correlation between core capex orders and jobs:

And there’s an 86 percent correlation between capex orders and the stock market:

Bottom line: Durable goods are down and manufacturing is down. According to the data presented in the above, not only does the report bode poorly for the already struggling job market, but it could also mean we're headed for another recession.

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Front page photo source courtesy the AP. This story has been updated.