Friday, August 24, 2012

July Shipments of Durable Goods Set New Record

The Census Bureau reported today that both: a) new orders and b) actual shipments of manufactured durable goods showed strong monthly gains in July, increasing by 4.2% and 2.6% respectively compared to June.  New orders were boosted by strong demand for civilian aircraft in July, including an order for 260 airplanes from Boeing. On a year-to-date basis, durable goods orders are up 8.9% and shipments are up 7.5% from a year ago. 

New orders for durable manufactured goods in July, at $230.73 billion, were at the highest monthly level since February 2008, more than four years ago (blue line in chart).  Actual shipments of manufactured durable goods (electrical equipment, computers, appliances, cars, aircraft, machinery, fabricated metal products, transportation equipment) have increased in seven of the last eight months and reached a new record high of $231 billion in July (red line in chart).   

In news reports, some concern was expressed by the 3.4% decline in July orders for "non-defense capital goods orders excluding aircraft," following a 2.7% decline in June, because those orders are considered to be a measure of planned business spending.  However on a year-to-date basis through July, those orders are 3.6% above the same period last year.  Further, those orders of about $61.6 billion in July represent only about one-quarter (27%) of the total durable goods orders in July of $231 billion.    

Bottom Line: Today's report on the strong monthly and annual increases in both new orders and actual shipments of durable factory goods strengthens the case that American manufacturing continues to be one of the strongest sectors and main drivers of the economic recovery.  In addition to strong gains in manufacturing output reflected in today's Census report, the 524,000 jobs added to factory payrolls since 2010 represent more than 13% of the total increase in payroll jobs during that period, even though manufacturing jobs represent fewer than 9% of the total payroll jobs in the economy.  For both gains in output and gains in employment over the last few years, the manufacturing sector is leading the rest of the U.S. economy.  

Related: See Business Insider's chart below and article "America's Manufacturing Industry Is The Envy Of The World Right Now."



26 Comments:

At 8/24/2012 10:35 AM, Blogger Jon Murphy said...

It should be noted that the PMI chart above is from HSBC/Markit, not the ISM, so the PMI numbers won't match up perfectly. The general trend is the same, but the actual numbers may differ.

 
At 8/24/2012 10:46 AM, Blogger Buddy R Pacifico said...

New orders can be iffy, especially for aircraft, but actual shipments are very solid.

Build, baby, build.

 
At 8/24/2012 11:07 AM, Blogger Jon Murphy said...

One of the other things we may want to note is the non-seasonally adjusted number (correct me if I am wrong, Dr. Perry, but your chart is seasonally adjusted?) for Nondefense Capital Goods New Orders (excl Aircraft) has been rising at more than twice its historical rate of rise for much of the past year and a half. The fact that New Orders themselves has slowed so quickly and even dropped below zero is likely just a result from the high levels of growth last year and in 2010. It would be hard to look at these numbers and say a recession is occurring just because they fell below zero on a monthly basis. I'll bet that once things kind of settle later this quarter/early next year, we'll see some pick-up in New Orders.

 
At 8/24/2012 11:13 AM, Blogger morganovich said...

this looks to have been caused mostly by aircraft orders, which tend to be very volatile.

New orders for manufactured durable goods in July increased $9.4 billion or 4.2 percent to $230.7 billion, the U.S. Census Bureau announced today. This increase, up three consecutive months, followed a 1.6 percent June increase. Excluding transportation, new orders decreased 0.4 percent. Excluding defense, new orders increased 5.7 percent.

Transportation equipment, up five of the last six months, had the largest increase, $9.9 billion or 14.1 percent to $80.4 billion.

ex-transport, orders dropped, in line with PMI.

not sure which to be looking at, but it would seem that (pardon the pun) this is being driven by transportation.

anyone have any data on what tends to happen when "core" diverges like that or why transport is so strong?

is that just the debt environment making airplane finance cheap?

 
At 8/24/2012 11:15 AM, Blogger Jon Murphy said...

not sure which to be looking at, but it would seem that (pardon the pun) this is being driven by transportation.

haha!

 
At 8/24/2012 11:22 AM, Blogger bart said...

Nondefense Capital Goods Excluding Aircraft (excluding the volatile aircraft area and only looking at non defense items), change last 6 months on a YoY basis.

SA:
11.9%
3.9%
2.9%
2.2%
-1.6%
-5.6%



NSA:
16.4%
3.7%
2.8%
3.2%
-2.5%
-6.2%

 
At 8/24/2012 11:23 AM, Blogger Jon Murphy said...

You are right, though, Morganovich: Aircraft New Orders is very volatile

By the way, that is not an error in my graph. New Orders were literally growing and shrinking at over 5000% during the recession.

By the way, for those of you who love to extrapolate trends from monthly rates of change, I challenge you to find me a trend here.

 
At 8/24/2012 11:27 AM, Blogger bart said...

Jon Murphy said...
...
By the way, for those of you who love to extrapolate trends from monthly rates of change, I challenge you to find me a trend here.


Use a linear regression on the last 6 months data I just posted?

 
At 8/24/2012 11:28 AM, Blogger Jon Murphy said...

Use a linear regression on the last 6 months data I just posted?

I meant in the Aircraft New Orders chart :-P

 
At 8/24/2012 11:35 AM, Blogger bart said...



Use an EKG from a cardiac patient? :-P

 
At 8/24/2012 11:56 AM, Blogger rjs said...

let's see what august brings...yesterday quantas cancelled an order for 787s almost as large an july's total order gain...

 
At 8/24/2012 12:00 PM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

 
At 8/24/2012 12:04 PM, Blogger Buddy R Pacifico said...

morgan asks:

"is that just the debt environment making airplane finance cheap?"

Boeing has an answer:

"Global airline deleveraging is driving down risk".

 
At 8/24/2012 12:15 PM, Blogger morganovich said...

buddy-

you link does not work. can you try reposting?

thanks.

-m

 
At 8/24/2012 12:45 PM, Blogger Buddy R Pacifico said...

morgan, sorry, here is the..

Boeing link...



 
At 8/24/2012 12:50 PM, Blogger morganovich said...

rjs-

that's an interesting datapoint.

question on airline ordering:

i have seen many other industries subject to wild booms and busts in ordering (like semi cap equipment) around new products. much of this is driven by double ordering of items on allocation to try to get a bigger share of limited availability.

do airlines do this around new aircraft?

 
At 8/24/2012 12:53 PM, Blogger Jon Murphy said...

Morganovich-

I imagine Aircraft is a little different. It takes years to build just one aircraft (especially if it's a 777). Generally speaking, an airline will buy a fleet of them at a time to replace aging birds. However, if they find they've ordered too many, they'll cancel the order. That is likely what causes the wild swings in New Orders.

 
At 8/24/2012 2:08 PM, Blogger morganovich said...

jon-

i'm not sure how that's different.

they place big orders and then cancel some when they get what they actually wanted.

i guess you could say it's intent rather than deliberate policy, but i'm not so sure it is not deliberate with airlines.

supply of 787's will be quite limited in the near term.

to be sure you get 2, you order 5.

 
At 8/24/2012 2:09 PM, Blogger Jon Murphy said...

I guess you are right. I must have misunderstood what you were saying.

 
At 8/24/2012 7:12 PM, Blogger marmico said...

For both gains in output and gains in employment over the last few years, the manufacturing sector is leading the rest of the U.S. economy.

I would hope so. Manufacturing employment was brutally crushed during the Great Recession.

 
At 8/25/2012 6:38 AM, Blogger VangelV said...

this looks to have been caused mostly by aircraft orders, which tend to be very volatile.

I wonder how the Qantas $35 billion cancellation of the dreamliner orders will be accounted for. I am sure that the order was recorded and reported when first made. Now that the cancellation has come through I wonder how it gets handled, if at all.

 
At 8/25/2012 6:54 AM, Blogger Jon Murphy said...

I wonder how the Qantas $35 billion cancellation of the dreamliner orders will be accounted for. I am sure that the order was recorded and reported when first made. Now that the cancellation has come through I wonder how it gets handled, if at all.

They will go back and remove it from the month where the order was placed. Example, if the order was placed in June 2011, they will remove that order from the June 11 data.

 
At 8/25/2012 12:15 PM, Blogger VangelV said...


They will go back and remove it from the month where the order was placed. Example, if the order was placed in June 2011, they will remove that order from the June 11 data.


But the good news in June 2011 will be revised away without the publicity that future orders had been overestimated. Who is to say that many of the current orders will not be cancelled in the future?

As others have pointed out, the reports are too volatile to be useful.

 
At 8/25/2012 2:56 PM, Blogger Jon Murphy said...

Which is why no one uses aircraft new orders as a leading indicator

 
At 8/25/2012 3:15 PM, Blogger VangelV said...

Which is why no one uses aircraft new orders as a leading indicator...

Yet, they are a part of the durable orders number that is reported.

 
At 8/25/2012 8:23 PM, Blogger Jon Murphy said...

Because they are durable goods new orders.

 

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