Bruised But Not Broken: U.S. Manufacturing Weathers the Storm
The U.S. Census Bureau, together with the Department of Commerce, issued its full report on durable and nondurable manufacturing for both August and September on Monday. The double report comes in the wake of the 16-day partial government shutdown, which interrupted the regular reporting of manufacturing data.
The headline measure for new orders of manufactured goods in September increased 1.7 percent to $490.8 billion, in line with economist expectations. This follows a 0.1 percent decrease in August and a sharp 2.8 percent decline in July. The total value of new orders placed over the past few months has flirted with pre-crisis levels, but the growth has largely been driven by new orders for transportation equipment — specifically commercial aircraft — which are usually seasonal.
Excluding orders for transportation equipment, new orders actually fell 0.2 percent in September. Orders for transportation equipment increased 12.9 percent to $77.5 billion, accounting for about 15.8 percent of total new orders. Within the transportation segment, new orders for non-defense aircraft and parts increased 5.4 percent on the month to $18.9 billion, accounting for about 24 percent of all transportation equipment orders. Strong orders for non-defense aircraft were echoed in third-quarter earnings reports from major aerospace companies like Boeing (NYSE:BA). Year-to-date non-defense aircraft equipment orders are up 22.5 percent.
New orders for motor vehicle bodies, parts, and trailers edged down 0.7 percent on the month to $19.8 billion, suggesting that the strong year-to-date U.S. car market may coast, rather than accelerate, through the fourth quarter. Orders for motor vehicle equipment increased 4.2 percent in August but fell 2.1 percent in July. Year-to-date new orders for the segment are up 5.9 percent.
The Census Bureau’s report is broken down into four primary segments: new orders, shipments, unfilled orders, and inventories. The new orders component is typically the headline citation and is arguably the best indicator of demand from the report.
The shipments component of the report can be used as a proxy for current demand. Total shipments increased 0.1 percent to $488.9 billion, following a 0.2 percent increase in August. Total shipments are up about 1.7 percent on the year, or 0.8 percent excluding shipments of transportation equipment.
Unfilled orders increased 0.9 percent to $1.041 trillion, the highest level since the report started publishing on a North American Industry Classification System (NAICS) basis in 1992. Unfilled orders increased 0.1 percent. The unfilled orders-to-shipments ratio climbed to 6.39 from 6.36. Inventories increased 0.4 percent to $634.0 billion, following a 0.2 percent increase in August. The inventories-to-shipments ratio increased to 1.30 from 1.29.
The Census Bureau data support data released by the Institute for Supply Management at the end of last week. According to the ISM’s October Manufacturing Report on Business, business activity within the manufacturing sector actually accelerated for the month. Its headline purchasing managers’ index increased from 56.2 to 56.4, its fifth consecutive month of growth. New orders increased fractionally, to 60.6, although the index for production fell, from 62.6 to 60.8. The index for employment showed decelerated growth at 53.2, but growth nonetheless.
The shutdown seems to have had an inconsistent effect on the overall industry. Executives from textile mills report that “new business is booming,” while fabricated metal products report that the “government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets.” Transportation equipment manufacturers report that “government spending continues to be slow in defense and military,” but that “the government shutdown and debt ceiling crisis did not affect business.”
Markit Economics, on the other hand, reports that manufacturing sector growth decelerated in October. Its headline PMI reading fell from 52.8 to 51.8 on the month, still indicating growth but at a more modest rate. The component index for output fell dramatically, from 55.3 to 50.6. New order growth also decelerated, with the index falling from 53.2 to 52.7. More importantly, though, the index for employment grew, climbing from 51.3 to 52.7. The ISM component index for employment showed decelerated growth, falling from 55.4 to 53.2.