Equipment Demand Hasn’t Dropped Out, Just Taking a Breather – WSJ

New orders for durable goods fell 4.0% in January. And bookings for nondefense capital goods excluding aircraft — a measure of future business spending on equipment — dropped 4.5%. Although the declines were larger than expected, they shouldn’t raise alarm bells. That’s because much of the weakness traces to special factors.

The first is the end of a tax credit that allowed 100% deduction for equipment bought last year. Not surprisingly, businesses front-loaded their purchases early in 2011.

The second reason is a quirk in the very volatile orders series: New bookings tend to fall in the first month of a quarter, then rebound in the second or third months. The pattern is especially acute in the first quarter.

via Equipment Demand Hasn’t Dropped Out, Just Taking a Breather – Real Time Economics – WSJ.

Comment:~ Accelerated tax write-offs stimulate new capital investment by the private sector, as companies bring forward or initiate expenditure in order to take advantage of the tax deduction. But there is bound to be a (partial) offset when the accelerated write-offs are removed.