Weak Numbers for Durable Goods Orders, Second Quarter Real GDP

By September 27, 2012Economy

The Census Bureau reported that durable goods orders fell by a whopping 13.2 percent in August, well below the 3.3 percent gain in July. To be fair, the bulk of this decline stemmed from the transportation sectors, especially for airplanes.

The nondefense aircraft and parts sector did not have any new orders in August, which obviously impacted the results. At the same time, defense aircraft and parts orders were off 8.1 percent, and motor vehicle and parts orders dropped 10.9 percent. Excluding the transportation sector, new durable goods orders would have been down 1.6 percent. 

Outside of transportation, sales were down across-the-board. Sectors with the largest declines in new orders included machinery (down 4.7 percent), computers and electronic products (down 2.9 percent), primary metals (down 1.7 percent), and fabricated metal products (down 0.4 percent). The electrical equipment and appliances sector, on the other hand, bucked this trend, up 3.8 percent. In addition, core capital goods – which are nondefense capital goods excluding aircraft – rose 1.1 percent.

Meanwhile, shipments of durable goods were also lower, down 3.0 percent. Excluding the transportation sector, shipments were off 0.9 percent. As with new orders, the declines were fairly broad-based. The sector with the largest decline was automotive and parts (down 11.2 percent), with also significant decreases seen in computers and related products (down 7.7 percent) and nondefense aircraft (down 6.4 percent).

It is clear that global weaknesses and political uncertainties in the U.S. are having an impact, with weak sales figures foreshadowing choppy months ahead for the manufacturing industry. This is obviously a challenge for a sector that had been providing outsized output and employment contributions to the economy.

Along those lines, the other bad news of the day came from a significant downward revision to gross domestic product. The Bureau of Economic Analysis said that real GDP in the second quarter was up just 1.25 percent instead of the 1.7 percent gain estimated earlier. The lower figure was the result of reduced inventory, spending on services, and exports. The drought, in particular, was a factor in lowering farm inventories more than what was estimated previously.

The largest driver of growth in the second quarter was the consumption of services, adding 0.99 percentage points to the 1.25 percent growth in real GDP. For manufacturers, spending on goods had a negligible contribution, adding just 0.08 percent. Nondurables consumption – primarily from gasoline and other energy goods – accounted for the bulk of this increase; whereas, reduced spending on motor vehicles led durable goods spending lower.

Fixed investment and goods exports were positives for manufacturers. Residential and nonresidential spending added 0.56 percentage points to growth. While this was lower than contributions of prior quarters, it was at least a sign that both housing and capital spending continue to move in the right direction. Likewise, the net export of goods contributed 0.25 percentage points to real GDP, with growth in exports outstripping imports.

Government spending remains a drag on growth, subtracting 0.14 percentage points. With the possible fiscal abyss and impending budget cuts approaching in 2013, this will no doubt continue to be the case.

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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