Are the Good Durable Goods Orders As Good As They Appear?

December 24, 2013

‘Tis the night before Christmas, and economists and the stock markets are rejoicing in the gift of an unexpected jump in durable goods orders in November. Some market analysts are declaring it to be a harbinger of a strengthening economy in 2014. One can always hope.

However, before anyone gets too carried away, it would be wise to note that some of these November orders may be due to a pending tax increase. The last extension of “bonus expensing” in the American Taxpayer Relief Act of 2012 – which allows immediate write-off of 50% of the cost of equipment – will expire on December 31. The cost of new equipment will be several percent higher in 2014.

The current surge in orders could be part of a rush to get machinery in place in offices and on factory floors by the end of the year to qualify for the faster write-off. The surge may be followed by a dip in investment this winter.

Stephen J. Entin, Senior Grinch

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