Quote:
Originally Posted by Cynthetiq
Durable goods orders can can be up many companies no longer purchase some if not many durable goods. Leasing is where it is at since there is no capital expense and no depreciation hits or complicated formulas to lock in for several years.
Many corporates no longer purchase computers, copiers and other imaging tools, and a host of other goods.
Computers are on 3 year leases ensuring that A) it is not a capital expenditure, it is now an operational expense instead of a capital purchase B) since computer lifecycles are less than 3 years it makes retooling sense C) warranty repair on a 3 year old computer costs more for the company providing it than selling a new one. This applies to many of the durable goods you are citing.
In effect, every 3 years our company replaces every single computer in our office. I've been at the company for 4 years now and have had 2 new computers, with no additional benefit since it was Windows XP before on the legacy machine. Windows XP on the first replacement and on the second replacement. Corporate is very leery of changing OS due to interoperability with legacy applications. My application will not work on IE8, and must run on IE6 or IE7. We're moving to Win7 in the next year or two but my app will have to be specially targeted because of that limitation.
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Equipment leasing doesn't all happen directly from the manufacturer, and so you get leasing companies ordering the equipment instead. Either way, you have goods being manufactured because companies are either leasing them or purchasing outright.
My overall point is that it is at this time in the business cycle when companies start spending money on things other than employees. Interest rates are low, so if they don't have the cash they can make the decision to take on upgrades before the upswing in the economy. It makes sense to do that now before interest rates go up again. And you can imagine the deals they could get with the economy the way it is as well. I imagine larger corporations or some of the experienced small business owners would be doing this having done it in the past.
Why else would durable goods be up? I can't imagine it's all consumer spending. Not with employment levels where they are.
EDIT:
This is something else to note:
Corporate mergers up, but effect acquisitions may have on job market is unclear
Sure this will likely put downward pressure on employment, but it's telling of two things: 1) companies are willing to use their cash and take chances on mergers and acquisitions and 2) these things tend to happen with higher volume at the tops and bottoms of cycles. In other words, this is another indicator of prepping for economic expansion.