July 5, 2017 Reading Time: 2 minutes

The value of shipments from U.S. manufacturers rose 0.1 percent in May, according to newly released data from the Department of Commerce. Total shipments are up 4.9 percent compared to the same period last year. May marks the sixth month in a row that year-over-year growth has exceeded 4 percent, the longest stretch since 2012. Year to date through May, shipments are up 4.6 percent compared to the first five months of 2016.

Shipments of defense capital goods (+10.9 percent), consumer nondurables (+10.1 percent), construction material and supplies (+4.5 percent), and information technology goods (+4.5 percent) were the strongest categories for the first five months of 2017 compared to those of 2016. These data are measured in current dollars, and some categories such as consumer nondurables may be partially driven by price changes in volatile goods such as petroleum products.

Capital-goods shipments rose 0.6 percent for the month and are up 1.4 percent year to date versus the first five months of last year. Stripping our defense capital goods, which tend to be less economically sensitive, and the volatile nondefense aircraft category, core capital-goods shipments rose 0.1 percent in May and are up just 1.0 percent in the first five months compared to last year. Weak capital investment has been one area of concern for the economy in general and for slow productivity growth specifically.

New orders for future shipments fell 0.8 percent in May, with durable goods and nondurable goods posting 0.8 percent declines. Year to date, durable-goods orders are up 3.0 percent compared to the same period a year ago. Aircraft orders, part of the transportation category, led the declines in May, with defense-aircraft orders falling 30.8 percent and nondefense aircraft orders dropping 11.6 percent. These declines were partially offset by a 0.1 percent gain in orders for motor vehicles and parts. Altogether, transportation-equipment orders fell 3.0 percent for May. When that segment is excluded from the total, durable-goods orders fell 0.3 percent for May and show a 5.8 percent increase year to date versus the same period a year ago. Among the major durable-goods industries, primary metals (+10.0 percent), fabricated metals (+7.6 percent), and machinery (+4.6 percent) are the strongest gainers in 2017.

Orders for nondefense capital goods excluding aircraft, a proxy for business investment, rose 0.2 percent in May, following a 0.3 percent rise in April. Year to date, orders for nondefense capital goods excluding aircraft are up 2.4 percent versus the same period a year ago.

Despite volatility month to month, manufacturing output has been on a slowly rising trend. While consumers have been driving growth for most of this expansion, recent weakness in motor vehicle sales has become a drag on the economy. Conversely, business investment has been broadly weak over the past few years, though there have been some signs of improvement over the past few months. A tight labor market and high consumer confidence should continue to support consumer spending, while strong cash flow, rising profits, and healthy balance sheets combined with the potential for faster increases in labor costs may prompt business to accelerate investment to help boost productivity and restrain upward pressure on unit labor costs.


Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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