Macro Data - Navigating Downbeat Macro Data

(bettertrades) - The forward-looking capital expenditures component in the durable goods report issued a gloomy forecast for the business environment over the short term.

On Wednesday morning, the Commerce Department reported cap-ex dropped 4% in October, following a 3.3% dip in September. The core capital expenditures indicator is used to forecast whether businesses are expanding or contracting capacity based on investments in revenue generating operations. The headline durable goods index fell 6.2% in October, the biggest drop since 2006. Transportation orders represented the largest component of the decline, falling 11.1%. Ex-transportation orders dropped 4.4%

While the maligned auto sector spirals towards bankruptcy or government rescue, orders for big-ticket items continue to plunge. Traders keep a watchful on the cap-ex component to forecast GDP and future economic activity. Declines in investments used to expand growth translate into stagnant or declining growth rates.

Meanwhile, the retail environment was issued another shot across the bow as consumers continue to tighten purse strings. Consumer spending declined 1% last month, marking the largest drop off since September of 2001. Reduced inflationary pressures have failed to induce consumer spending while recession fears take hold and financial instability bites into GDP forecasts.

Economists estimate consumer spending accounts for roughly 70% of GDP, highlighting the impact that a slowdown in discretionary spending could have on the economy. Access to cheap credit and home equity lines of credit have contributed to the growing proportion of consumer spending as it relates to GDP.

On the bright side, the quantity of workers filing for initial jobless claims dropped by 14,000 to a seasonally-adjusted 529,000. Continuing jobless claims for the week ended Nov. 15 decreased by 54,000 to 3.96 million. However, the four-week moving average, which smoothes volatility in the claims number, numbered 529,000, a high not seen since 1983.

While the capital expenditures and consumer spending data paints a grim picture, fluctuations in the labor market remain critical to GDP forecasts. This week's decline in jobless claims appears to be the exception as opposed to marking a reversal in the burgeoning unemployment rate. As the macro data tide rolls in, equities face the daunting task of navigating their treacherous waters.