Demand for durable goods up, but fiscal cliff worries continue

Growing concern over the fiscal cliff negotiations sent global stocks falling overnight, and will likely offset the impact of several positive economic reports, according to an analysis from Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.

Demand for U.S. durable goods rose in November rose by 0.7%, beating the 0.3% number that analysts had forecast. Of seven industries included in the report, five showed gains, with only the “all other” category showing a decline in order books. “The stellar piece of the report was not just a surge in orders for capital goods outside of defense orders and aircraft, which rose by 2.7%, but also an upwardly revised 3.2% gain for October,” Wilkinson says.

In another piece of good news, the Chicago Fed National Activity Index also was up 0.10 points in November, boosted by the production and income components. “The magnitude of the surge is what grabs our attention as industrial production picked up,” Wilkinson says in his analysis. “The lift also caused a spike higher in the three-month average reading which rejected a move towards the dreaded recessionary threshold.”

But these strong reports ultimately won’t mean much in the face of fiscal cliff deadlock, Wilkinson predicts. “This morning U.S. investors face the final day of the trading week, and for many that means a break until at least the middle of next week,” he says. “Will many simply sell and go away in the face of what looks like increasing uncertainty?”

House Speaker John Boehner’s alternative plan for averting the fiscal cliff failed to garner support from fellow Republicans on Thursday, after which Boeher said he would leave it to Senate Majority Leader Harry Reid and President Barack Obama to propose a solution to the crisis.

The e-mini index future traded for a 50-handle loss overnight, according to Wilkinson, who notes that, in a rare occurrence, the U.S. volatility index (VIX) jumped above the European Union’s risk measure.

Finally, the Thomson Reuters/University of Michigan consumer sentiment index, which was initially reported at 74.5, was revised to 72.9, down from 82.7 in November. This is the lowest number since July, and reflects declines in both current and future economic sentiment.

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