With autos and general consumer spending rolling over, the two things propping up the economy are housing and durable goods orders, more specifically airplane orders. What’s up with that?
Durable Goods New Orders and Shipments
Compare durable goods new orders with capital goods new orders excluding aircraft. The latter is known as core capital goods because it is a measure of actual business investment.
Despite sentiment numbers that are through the roof, businesses are not putting their money where their sentiment is. I asked a friend connected to the industry his take. I also asked about order cancellations. Here is his reply.
Hi Mish
This is drip by drip.
Part of your answer is found in this article: American Airlines Delays Boeing, Airbus Jet Deliveries.
These orders were placed years ago. Some are deferred, some canceled. Boeing does not disclose the cost to cancel, but there is some. Typically there is a % down payment with additional payments as the airplane assembly progresses. Boeing usually, in a normal market, is able to place these canceled/deferred airplanes with other customers.
Boeing is very good with its customers and accommodates to the extent possible. But, wide-body airplane demand is collapsing. Emirates just pulled 12 flights per day as US-Mideast travel is in decline due to Trump’s actions.
2018 and 2019 look grim for Boeing. Expenses are high and they are laying off to stay ahead of the curve.
Five-Year Slump in Wide-Body
Leeham News reports Pontifications: Five-Year Slump in Wide-Body Demand Seen.
The above analysis has not translated into economic reality yet. Perhaps it won’t. But credit card defaults have soared, autos are heading South, consumer spending is weak, wages have not kept up with inflation, and regional bank lending has collapsed.
Related Articles
- April 29: Regional Lender Loan Crash: Nearly Every Major Regional Bank Missed Lending Estimate
- April 28: Economists Expect 2nd-Quarter Recovery: Investigating the 1st-Quarter Weakness Theory
- March 21: Consumer Sentiment Statistical Noise: Modern Day Snake Oil
- March 28: Consumer Confidence Strongest Since December 2000: A Strong Contrarian Indicator?
- April 13: Econoday Parrot Squawks Again after Sentiment Rebounds to 17-Year High
Meanwhile, please don’t worry because the Bottom 50% of Americans No Longer Matter.
Mike “Mish” Shedlock
Off topic but won’t help trade……..
http://www.telegraph.co.uk/news/2017/05/01/jean-claude-juncker-says-theresa-may-deluded-scathing-call-angela/#comments
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Interesting and carefully crafted article … plays to the grandstand though, both the French elections (Macron) and PM May’s (Tories’) core support base.
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I just got laid off from Boeing as part of massive ‘cost savings’ exercise.
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I wish you well Richard.
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Good luck. Hang in there.
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passenger airline consolidation is a killer also. Reduced competition means higher prices, fewer routes, less need for new, clean, efficient jets.
But profits are looking nice.
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Even aircraft being commoditised, just like labour.
Low rates have helped consolidation throughout but the game is up when there is no further margin to be eked out, competition dries up and prices rise.
Unfortunately, although a limited number of aircraft manufacturers (just one example), there’s no limit to labour available globally – labour gets shafted (labour prices stsgnate) whilst prices rise.
Those with capital benefit, everyone else swivels.
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Also:
Tariffs on timber and steel – more to come.
On Friday Home Capital Group (Canada) lost 36% of it’s liquidity.
Scary stuff, Mish.
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Aw, Trump is dashing hopes for a booming Haj traffic out of the USA.
Not handing the country over to more motivated residents.
There goes those booming UNESCO econometric stats.
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Turns out people do not like to be groped, bumped, Fed food like substances, herded like cattle, or beat the shit out of and dragged off of a plane.
Who knew?
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Gotta love that deregulation.
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Only a liberal from California could look at the police state TSA and claim it was deregulation
Only a police state could look at the TSA and claim they were there to stop terrorism. Grope, fondle, and molest sure. Steal from carry-on luggage, you bet. But in 15+ years they haven’t stopped a single thing. Loads of reports of people carrying weapons onto planes (usually by mistake, sometimes a failed test by GAO agents — but the TSA fails again and again).
How do you expect to be taken seriously when you call this bloated regulatory agency “deregulation”?
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“But in 15+ years they haven’t stopped a single thing. ”
Not true! I never try to bring weed on a plane anymore. I now FedEx it ahead. 🙂
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Ah. Then there was the time they wouldn’t let me bring my carry-on onto the plane because it didn’t fit in their lil bag size check thingy.
They are doing a bang up job!
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I cannot find it now, wish I could, but right after 911 there was a cartoon of passengers going thru security wearing hosptal gowns.
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In business school, in advertisements, in management books — everywhere you look — businesses say “the customer is always right”. Doesn’t always work out that way, but 99.999% of businesses at least pretend and go through the motions.
Airlines are the only industry that start with the assumption that their customers are wrong. You are a terrorist until you have been groped, fondled and had your luggage mishandled. Then you get shoved into a sardine can filled with germs and fed a micro-sized bag of pretzels and a quarter can of soda. The seat you paid for doesn’t accomodate an average sized person, leg room is so confined that it causes circulation problems. If you dare to suggest you are a customer not a felon, the airlines beat you with a stroller and drag you out of the plane.
And on what planet would the CEO go on TV and claim that beating up a customer to make space for employees is appropriate? Its great the guy backed down eventually, after public protests and being justly ridiculed by every late night comedian in the country. But the CEO still has his job, and so do the flight attendants who made false claims about a non-existent “security risk”. Now shareholders are expected to fork over a large settlement for a guy that was beat up by airline staff — as though beating up customers is somehow standard procedure.
I don’t know anyone who thinks flying is “fun” or even “neutral” anymore. Its a misery that you put up with because you have to for your job.
Boeing thinks they can have constant cost overruns for military contracts — and blame the taxpayers. Airlines think their customers are an inconvenience, and the TSA thinks travelers are there to be harassed.
That is why airplane sales are way off. The economy may be slowing down and suffering from steroid withdrawal… but airplanes and airlines are slowing down because they make a business of mistreating their customers.
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you have a hard time opening a laptop in coach now unless you have bulkhead or exit row.
I do not fly that much now but when I do all I use is a ipad to read books and listen to music, its impossible to work on a project .
a few months back durable goods was high due to new orders but at same time united and America (USAir) wer cancellign orders from a year or two earlier..
thats part of the game the govt rams down at us
in addition, Obamas 600 billion deficit??? fo rhte last 2 fiscal years—GAO says w=its mor elike 1.2 and 1.4 trillion an dnow congress extends debt ceiling by 6.5 months and needs to raise debt ceiling by 1 trillin which is 1.8 trillion run rate–its is all a fraud.
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I’ll keep flying until Greyhound can go 550mph.
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The travel boom that has been so beneficial across all world economies is a function of affluence. Even though many are struggling under excessive debt, many are not and have the moolah to spare. But as things tighten, which is the only trend these days, travel will dry up and one will see lots of idle planes and cruise ships laid up. This cannot be far off..It may even begin this year.
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DJT tweeted in December to cancel new AF 1 … and F-35 “out of control”.
Backed away from canceling AF 1 when got agreement from Boeing won’t be over $4 billion … and Lockheed Martin made some concessions on F-35 pricing.
an ounce of flesh from both.
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+1
In every industry I am familiar with, if a supplier’s costs run higher than expected, it comes out of the suppliers profits (or expands their loss). You sign a contract, and you are expected to honor it or go out of business trying.
Only government contractors expect to go over the agreed upon price time after time after time.
Boeing should deliver the AF1 and F35 planes at the originally agreed upon prices, just like a real business.
Trump did the right thing holding Boeing to the agreed price. Washington DC should be embarrassed such accountability isn’t the norm
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I assume you’re not in the software business 🙂 I’d be surprised if a single larger system, was ever delivered in scope, on time, and within originally estimated budget….
It’s fundamentally a function of complexity. Not malfeasance. Although both software vendors, and I have no doubt aerospace ones, are well aware they are dealing with a known sucker, when they have the government across the table. Kind of like unions do. People who don’t spend their own money, simply don’t care. And the kind of people that tend to get promoted to decision making authority in our PCified governments, tend to be the exact ones who are the least comfortable playing hardball with the well dressed, good looking, slick talking, and “highly degreed” sales “engineer” making a pitch.
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The first 767 Boeing made (the test model) was probably a headache in complications, but after that there is this thing called mass production. Every 767 after that is just like the first one.
Boeing only builds the planes. The interior stuff — whether crammed airline seats or luxurious oil sultan seating or piles of electronic warfare equipment, gets added post production.
And Boeing is supposedly in the airplane construction business — so the standard cost overruns, not to mention an average of non-standard overruns, should be built into their price. If they can’t estimate those events, they shouldn’t be in the business.
There are lots of complex construction projects, with lots of complex wiring. Every sky scraper in every city for example involves thousands if not millions of miles of power cables, telephone, ethernet, and video. Elevator cars and cable and controls. Far more steel (and concrete) than goes into an airplane. HVAC systems, air circulation, etc etc etc. And union workers from steel hangers to concrete to teamsters to electricians and plumbers. All stuff that Trump is familiar with as a real estate developer.
Plenty of construction contracts have clauses that the developer (and subcontractors) get a bonus for finishing on-time, and penalties if they deliver late. Its called being a professional.
I see no valid excuse why a plane manufacturer can’t uphold the same expectations in their industry. Its not Boeing’s first plane
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The difference between a, as in singular, complex system like an airplane; and a skyscraper, is that most of a skyscraper is just a collection of simple, and isolated, subsystems.
The only critical piece of a skyscraper is the frame and foundation. And those can relatively penalty free be over specced. As the saying goes: “Light, strong, cheap. Pick 2.” For a building, it’s trivial to not bother with “light,” and still produce a functional product. In aerospace, you have to have “light” and “strong,” hence have no choice but to sacrifice “cheap.”
In anything as big as a skyscraper, there is some emergent complexity to be sure. But screwing up some HVAC vents in suite 2408, won’t bring the building down. Screwing up a vent in an airplane, very well may.
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atlanta fed 4.2% gdp forecast for 2nd qtr fyi
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The Realist second quarter GDP forecast 1-2%. Steady as she goes.
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The airline and auto industry may be in trouble, but that just leaves alot of skilled engineers available for hire in my new space age guillotine corporation of america.
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Flying is a privilege so no complaining allowed. If you don’t like the way they treat you, take a train, boat or drive. Just be quiet and be thankful you arrived alive if not always on time.
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Be careful what you wish for airline employees.
Many companies encourage employees to drive “short trips” (under 12 hours driving) — saves on rental cars and airplane tickets.
Not to mention, for many trips driving is actually FASTER than flying. Getting to the airport 2 hours ahead of time (more if you have to return a rental car). Sitting on the tarmack for no reason. Random flight delays. Connecting flights usually involve wasting lots of time at a hub airport. When you arrive at your destination city, another hour for baggage claim, car rental / ground transport followed by traffic from the airport to your actual destination.
The airplane shuttle from Washington DC to NYC takes about the same amount of time as driving. From NYC to Boston, driving is faster. From DC to Charlotte or Atlanta — driving is usually the same amount of time, but often faster. Planes may go faster in the air, but they involve hours and hours wasted circling airports (either in ground traffic and/or air traffic).
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Dead on Medex Man. I travel approximately 50 – 75% for my company as an IT Project Manager. I only will drive if the trip is less than 12 hours.
In a car, I determine when I leave and depart (I can change plans in a moment). I sit in a car with the temp where I want it, listening to whatever audio pleasures me at the moment, eat/drink what and when I want and generally don’t worry about having a 400 lb share part of my personal space.
Won’t even go into how I don’t have to deal with the airlines, TSA, drive to the airport, etc.
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