By: David Winter, Columnist, International Director
New orders climb 2.3 percent, the most since September 2017.
US factory orders surged by $11.5 billion, or 2.3 percent, in August to $510.5 billion, the largest month-on-month increase since September 2017, beating analysts’ expectations of a 2.1-percent growth. On a year-on-year basis, orders increased 8.6 percent.
The United States Department of Commerce also raised the previous month’s figures to -0.5 percent from the previously announced -0.8 percent. New orders for manufactured goods have shown positive growth in the last three out of four months, with the latest figures backed by a $2.3-billion increase in shipments to $504 billion, after remaining virtually unchanged in July. Inventories were also down after rising for 21 months on the trot. The other key feature of the economic indicator was a decline in the unfilled orders-to-shipmentsratio from 6.72 to 6.68 and the inventories-to-shipmentsratio from 1.35 to 1.34.
The sharp rebound in the August numbers was largely led by demand for aircraft, with orders for civilian aircraftand parts rising to 69.1 percent from -29.1; while for defenseaircraft and parts, new orders rose 17 percent versus -32.3 in July. In addition, new orders for motor vehicles increased 1.0 percent, moderating from the 1.6-percent growth reported in July. Gains were also seen in primary and fabricated metal products and electronic equipment. On the flip side, orders for computers, machinery andelectronic components fell.
Data for factory orders is published following the results of a survey by the US Census Bureau Manufacturers’ Shipments, Inventories, and Orders (M3). Composed of a panel of around 5,000 reporting units from about 3,100 companies, the M3 survey gives an indication of the month-on-month change in the manufacturing sector.
Coming to the breakdown of individual components, new orders for manufactured durable goods rose by $11 billion, or 4.4 percent, in August compared to a 1.2-percent fall in July, while new orders for manufactured nondurablegoods increased at a much slower pace of 0.2 percent during the same period.
Shipments of manufactured durable goods, meanwhile, increased by $1.8 billion in August after slipping by 0.1 percent the previous month. Likewise, shipments of nondurablegoods rose by $0.6 billion, or 0.2 percent, a moderate 0.1 increase from July.
Inventories of manufactured durable goods decreased for the first time in 19 months, led by a 1.4-percent slide in transportation equipment. On the other hand, inventories of manufactured nondurable goods continued to head north, recording the 15th straight month in inventory growth on the back of an increase in the stockpile of petroleum and coal products. Likewise, materials and supplies grewby 0.3 percent in durable goods and 0.4 percent in nondurable goods during August.
The Institute for Supply Management (ISM) Manufacturing PMI (Purchasing Managers Index) dropped to 59.8 in September, after scaling above 14-year highs of 61.3 in August, as both new orders and inventories declined. The PMI figures were below market expectations of 60.1 as businesses remained wary of the implications of the ongoing trade battle with China. New orders witnessed the sharpest fall, diving from 65.1 in August to 61.8 in September in spite of production, employment and new export orders showing some amount of growth compared to the previous month.
Manufacturing accounts for about 12 percent of the US economy. With the ongoing trade war between the United States and China heating up, the domestic manufacturing sector in the US is looking to regain some business after the inflow of cheap Chinese goods into the country has tended to become expensive due to import tariffs levied at the border. But economists expect momentum to gradually decline amid the shortage of workers and a strong dollar. With new orders for US-made goods jumping to 11-month highs on the back of a surge in demand for aircraft, a fall in business spending on equipment is one of the early signs that the manufacturing sector could be slowing down.