The Census Bureau reported that new orders for durable manufactured goods rose 3 percent in December. While slower than the 4.3 percent growth rate of November, it does mark the second consecutive month of strong gains – a sign that the sector has recovered from weaknesses in the middle of the year. Capital goods orders increased 4.5 percent for the month, or 2.9 percent for nondefense capital goods items excluding aircraft (also known as “core” capital goods).
Overall, there were several areas of strength in the new orders figures. The fastest monthly gains were seen in nondefense aircraft and parts (up 18.9 percent), machinery (up 6 percent) and primary metals (up 5.1 percent). Nonetheless, there were also declines observed in defense aircraft and parts (down 6.8 percent), computers and related products (down 2.6 percent) and fabricated metal products (down 1.4 percent).
Durable goods shipments also rose in December, up 2.1 percent and reversing the 0.3 percent decline last month. Among shipments, defense capital goods had a strong increase of 8.9 percent. Other leading sectors were communication equipment (up 9.6 percent), primary metals (up 8.2 percent), defense aircraft and parts (up 4.9 percent) and machinery (up 4 percent).
Unfilled orders and inventories grew 1.5 percent and 0.3 percent, respectively, in December, continuing a long streak for both of them.
Meanwhile, the Kansas City Federal Reserve released its latest manufacturing survey, which mirrors the rebound found in the durable numbers above. The composite index of manufacturing activity rose from -2 (a slight contraction) in December to +7 (modest growth) in January. Improvements were seen across-the-board, with turnarounds in production, shipments, new orders, employment and exports.
Raw material inventories remained lower, with no change in finished goods inventories. Pricing pressures were evident, though, with an escalation in raw material costs. The prices paid index rose from 27 to 42, suggesting strong increases in these costs.
Looking ahead, manufacturers remain optimistic about future production, employment, exports and capital spending. The composite index of 12, however, has been the same for the three consecutive months, suggesting that the overall level of optimism remains unchanged. Some easing of new orders has taken place, falling from 25 to 18, offsetting increased paces of growth elsewhere.
Overall, these two indicators show moderate growth in manufacturing activity and a nice rebound from the slowdown in the fall months. The optimism for future activity bodes well as we move further into 2012; however, most manufacturers would admit that such optimism is cautious, especially as a number of significant headwinds persist both domestically and globally.
Chad Moutray is chief economist, National Association of Manufacturers.
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