Factory Orders Rise in July on Transportation, While ISM-Chicago Reflects Slower Growth

By August 31, 2012Economy

The Census Bureau reported that new orders for manufactured goods rose 2.8 percent in July, reversing the 0.5 percent decline in June. A strong increase in transportation sales lifted durable goods orders by 4.1 percent, outpacing the 1.5 percent gain from nondurable goods.

Illustrating the impact of higher motor vehicle and nondefense aircraft orders on this figure, manufacturing new orders would have risen by just 0.7 percent without these sectors. This was noted a week ago when advanced data for durable goods was released.

The strongest sector for new orders in July was primary metals, which was up 2.9 percent. Most of the other major sub-industries were lower, including machinery (down 4.1 percent), electrical equipment and appliances (down 2.2 percent), fabricated metal products (down 0.8 percent), furniture and related products (down 0.4 percent), and computers and electronic products (down 0.2 percent).

Meanwhile, shipments of manufactured goods increased 2 percent in July. As with new orders, the bulk of this gain stemmed from transportation, which jumped 8.6 percent. Other leading sectors for shipments were beverage and tobacco products (up 3.7 percent), apparel (up 2.3 percent), petroleum and coal products (up 2.3 percent), chemical products (up 1.7 percent), primary metals (up 1.3 percent), and computers and electronic products (up 1.1. percent). Note the large presence of nondurables in this list, which helped to lift nondurable goods shipments by 1.5 percent.

The other key data point released today came from the Midwest. The latest ISM-Chicago report found slower growth in the region, with its Business Barometer down from 53.7 in July to 53.0 in August. With that said, the various components were mixed. Order backlogs and supplier deliveries were both contracting at their slowest paces since the second half of 2009. Yet, there were improvements in production, new orders, employment, and capital equipment spending. Cost pressures appear to be accelerating, though.

The sample comments that were provided reflected the uncertainties of the marketplace, and it is clear that manufacturers are paying close attention to the political process. As one respondent said, “Business appears to flat line until the uncertainty of the 2012 Presidential election is over.” Other reactions noted slower sales growth with an eye on slowing global growth. As with the Beige Bookreleased earlier in the week, slowness in Asia was noted, suggesting that challenges go beyond the problems in Europe. On the other hand, an improving housing market was helpful, and another individual taking the survey said that their company was “Going Gangbusters.”

The ISM-Chicago is an early indicator of what the Institute for Supply Management’s purchasing manager’s index – which will be released on Tuesday – might be. It is expected to indicate very slow growth in activity, if any.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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