U.S. Factories Chugging Along; Labor Market Remains Robust
Shipments from U.S. manufacturers rose 0.3 percent in July following gains of 0.1 percent in June and 0.3 percent in May. Year to date, total shipments of U.S. manufactured goods are up 4.7 percent compared to the same period a year ago. Shipments of nondurable goods rose 0.4 percent for the month and are up 6.2 percent year-to-date compared to 2016. Durable-goods shipments increased 0.2 percent, bringing the year-to-date gain to 3.2 percent.
New orders for future production fell 3.3 percent, led by a steep drop in aircraft orders. Orders for nondefense aircraft plunged 70.8 percent in July after surging 129.2 percent in June. Aircraft orders tend to be extremely volatile. For example, despite efforts to adjust for seasonal patterns, the annual air show in Paris in June can result in huge swings in orders in some years. The plunge in aircraft orders pulled total new orders for durable goods at the nation’s manufacturers down 6.8 percent in July, to $228.9 billion versus $245.7 billion in June. Year to date, total new orders for durable goods are $1,608.1 billion, a rise of 5.0 percent versus the same period last year.
Total new orders for core capital goods — nondefense capital goods excluding aircraft — a proxy for private-sector capital investment, totaled $64.1 billion in July, a rise of 1.0 percent from the prior month and 6.3 percent from July 2016. Year to date, new orders for core capital goods total $442.8 billion, 3.3 percent above the same period last year.
Combining the new-orders and shipments data, the total unfilled orders on the books at manufacturers fell 0.3 percent in July but are still 0.7 percent above those in July 2016. At the current pace of shipments, the ratio of unfilled orders to shipments ticked down slightly to 6.75 months from 6.82 months in June. That is well above the low of 3.65 months’ backlog in 2000 but below the peak of 7.58 months’ backlog in January 2009.
Overall, factory orders in aggregate and new orders for core capital goods have been trending higher over the past year. Moderate trend growth in the economy is helping boost demand, yet levels remain below peaks from prior expansions, suggesting room for further expansion in new orders. Continued growth in new orders should translate into positive contributions to GDP growth in the coming quarters.
The Employment Trends Index from The Conference Board rose again in August, reaching a level of 134.62 versus 133.6 in June. The July level represents a 5.6 percent increase over the July 2016 level. The ETI is a composite index of eight labor-market indicators. The eight labor-market indicators aggregated into the Employment Trends Index include the following: percentage of respondents who say they find jobs hard to get (The Conference Board Consumer Confidence Survey), initial claims for unemployment insurance (Department of Labor), percentage of firms with positions not able to fill right now (National Federation of Independent Business Research Foundation), number of employees hired by the temporary-help industry (Bureau of Labor Statistics), ratio of involuntarily part-time to all part-time workers (Bureau of Labor Statistics), job openings (BLS), industrial production (Federal Reserve Board), and real manufacturing and trade sales (Bureau of Economic Analysis). The strong upward trend in the ETI suggests the labor market remains vibrant, supporting a positive outlook for the economy.
Robert 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.
