No Winter, No Problem: Manufacturing Orders Soar in February
It appears as if economic activity could actually pick up through the end of the first-quarter. According to the U.S. Census Bureau, new orders for manufactured durable goods increased 2.2 percent on the month and 0.2 percent on the year in February to $229.4 billion, beating estimates for a more modest increase of 1.0 percent. This increase follows two consecutive months of declines in December and January.
Excluding new orders for transportation equipment, which can be subject to seasonal and cyclical volatility, durable goods orders increased 0.2 percent on the month and 1.5 percent on the year. New orders for transportation equipment increased 6.9 percent sequentially to $71.4 billion, or about 31 percent of total spending.
Excluding new orders for defense equipment, which are subject to the vagaries of politics, durable goods orders increased 1.8 percent. New orders for defense equipment increased 2.2 percent sequentially and is up 0.8 percent year to date compared to last year.
The durable goods data for February compliments the Institute for Supply Management’s Manufacturing Report on Business. ISM maintains a purchasing manager’s index for the manufacturing industry, which increased 1.9 percentage points sequentially in February to 53.2, indicating accelerated growth. Supply executives did report that the cold weather was a headwind, but the new orders component of the headline index still increased. Production, however, declined from 54.8 to 48.2, contraction territory. If this contraction is mostly weather-based, then market watchers should expect to see production increase in March as bad weather clears out.
The ISM’s PMI is consistent with the manufacturing PMI maintained by Markit Economics. Markit’s manufacturing PMI increased from 53.7 in January to 57.1 in February, the strongest sequential improvement in 45 months. Markit’s components for new orders and output both increased.
“This to a large extent reflects a temporary rebound after supply chains and production had been disrupted by severe weather. While bad weather continued to hamper production at many companies in February, many also reported that weather-related issues were being overcome,” commented Markit Chief Economist Chris Williamson. “The upturn pushes the trend over the last three months to the strongest since May 2012, suggesting that the sector maintained robust underlying growth momentum throughout the winter months.”
In mid-2013, new orders for manufactured durable goods have returned to to pre-crisis highs, but have since tapered off — unsurprisingly, alongside the Federal Reserve’s tapering of quantitative easing (QE.) As it was with equities and other interest-rate sensitive investments, QE was a tailwind for manufacturing, as businesses could capitalize on low interest rates to place new orders for equipment.