This morning, the Census Bureau released advanced data on durable goods orders for April, with new orders for manufactured durable goods falling 3.6 percent in the month. The largest declines were in transportation equipment (down 9.5 percent). Excluding transportation, new orders fell 1.5 percent. Durable goods shipments fell 1.0 percent. It is important to note that much of the decline was in sectors impacted by the Japanese disaster, as supply disruptions continue to affect production, particularly in the automotive sector. One bright spot was in computers and electronic products, with new orders up 0.7 percent and shipments up 3.5 percent for the month.
Unfilled orders and inventories both rose for the month, by 0.2 percent and 0.9 percent, respectively. Both have risen each month for over one year, reaching new highs. The largest increases in unfilled orders were in machinery (up 2.2 percent), other durable goods (up 1.5 percent), and capital goods excluding aircraft (up 0.9 percent). With continued growth in unfilled orders, these sectors should continue growing despite the cooled figures for new orders.
This news comes on the heels of yesterday’s manufacturing survey for April from the Richmond Federal Reserve, which also showed weakness in new orders and shipments. Its index of current activity fell from 10 to -6, a decline that was unexpected by many analysts. Despite the negative number, its overall conclusions are quite similar to the surveys released by the New York and Philadelphia Federal Reserve Banks last week.
Two interesting points from this survey: First, it found that raw material prices averaged an annualized increase of 6.12 percent in April, building off of the 4.81 percent increase in March. This continues to highlight the pricing pressures that many manufacturers are facing right now. The second piece of news is that despite the cooling that we are seeing, manufacturers continue to hire. The manufacturing employment index in the Richmond survey remained steady at 14. Moreover, the respondents said that they were “generally upbeat” about the next six months – a good sign.
Putting all of this in perspective, Mark Doms, the chief economist for the U.S. Department of Commerce, yesterday wrote favorably about the boost that manufacturing is giving the economic recovery. While he wrote that post prior to today’s durable goods numbers, it does reflect the overall trend that we have seen in the past few months. He goes into great detail about durable goods orders and trade and writes that “there is good reason to be happy about the prospects for the manufacturing sector, particularly given the role exports are playing in boosting the industry.”
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