AP's Economist Sources Are Wrong: Business Investment Will Contribute to Growth in the Second Quarter

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Saturday, 27 July 2013 08:18

An AP story that ran in the NYT told readers:

"business investment is not likely to help economic growth in the April-June quarter, economists said. That is because the government measures shipments, rather than orders, when calculating business investments’ contribution to growth. Shipments fell in June. But the increase in orders this spring suggests shipments will rise in the July-September quarter and add to growth."

The first part of this is wrong and the second part is questionable. The data for the months April, May, and June show shipments of non-defense capital goods increasing at a 5.4 percent annual rate compared with shipments in the first quarter. This is a nominal figure, but since inflation in investment goods has been close to zero, this number is likely to be close to the real growth rate for the quarter.

The predicted growth for the third quarter based on the rise in orders in June is also dubious. The main reason for the rise was a jump in aircraft orders. These orders are placed well ahead of expected delivery dates. Aircraft manufacturers will not necessarily up their production schedules in the third quarter simply because they have more orders for planes that may not be delivered until 2016 or even later.