Tag: durable goods orders

Monday Economic Report – March 31, 2014

Here is the summary for this week’s Monday Economic Report:

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

Chad Moutray is the chief economist, National Association of Manufacturers.

gdp forecast - mar2014

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Monday Economic Report – March 3, 2014

Here is the summary of this week’s Monday Economic Report:

The U.S. economy grew 2.4 percent in the fourth quarter, down from the earlier estimate of 3.2 percent. Given some of the recent weaker manufacturing, retail and housing data, the downward revision was largely expected. Still, there are some positives in the report, with strength in consumer spending, business investment and net exports. Fixed investment was higher in this revision, which was welcome news. Federal government spending accounted for the biggest drag on growth during the fourth quarter, subtracting one percentage point from the total figure.

The bottom line is that real GDP increased 3.3 percent in the second half of 2013, providing some momentum for growth moving into this year. While weather and other factors have dampened the economy recently (and will also reduce real GDP in the current quarter), we still expect 3.0 percent growth for 2014. Manufacturers continue to be mostly upbeat about demand and production over the coming months.

Despite such optimism in the outlook for the year, the current environment for manufacturers clearly has its challenges. Weather has negatively impacted production and shipments in a number of regions around the country, and surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks all observed some easing in activity in February. This followed similar reports from the New York and Philadelphia Federal Reserve Banks the week before. Meanwhile, the Census Bureau has reported lower new durable goods orders for two straight months, with poor weather conditions likely a factor, particularly for auto sales. At the same time, new durable goods orders excluding transportation were higher, suggesting that the broader manufacturing market was slightly better than the headline figure indicated.

Some of the other data remain mixed. New home sales were up sharply in January to their highest level since July 2008, but year-over-year growth was more modest, and inventories of new homes have fallen over the past few months. Nonetheless, the positive report on new home sales stands in contrast to much weaker residential construction figures of late, including housing starts and existing home sales, which have seen negative impacts from the weather. Similarly, the two major reports about consumer confidence moved in opposite directions, with the Conference Board’s measure lower in February and the University of Michigan’s figure edging slightly higher. Doubts about income and labor growth have possibly fed some anxieties in sentiment in both surveys, but the two reports differ in their findings about the economic outlook.

This week, the focus will be on manufacturing activity, employment growth and international trade. We will get February Purchasing Managers’ Index (PMI) data from the Institute for Supply Management (ISM) later this morning. After falling from 56.5 in December to 51.3 in January, the ISM PMI is expected to increase modestly, still indicating weaknesses in new orders and production for the month. On the trade front, we will be looking for better manufactured goods exports in 2014, improving on the modest 2.4 percent growth rate seen in 2013. Still, manufactured goods exports hit an all-time high last year, providing a positive for economic growth.

The biggest news of the week will come on Friday with the release of new jobs numbers. Nonfarm payroll growth has been soft over the past two months, with just 75,000 and 113,000 net new workers added in December and January, respectively. The consensus expectation is for roughly 165,000 nonfarm workers added in February. In contrast, manufacturing job gains have been fairly decent over the past six months, averaging 15,500 since August, and we should get modest gains again in February. One of the bigger conversation pieces will be whether the unemployment rate falls to 6.5 percent in February, which is the rate specified in the Federal Reserve Board’s forward guidance. (Either way, look for the Federal Open Market Committee to change its guidance at its next meeting.) Other highlights this week include the latest data on construction spending, factory orders, personal income and spending and productivity.

Chad Moutray is the chief economist, National Association of Manufacturers.

personal consumption - mar2014

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Monday Economic Report – December 2, 2013

Here is the summary for this week’s Monday Economic Report:

The data released last week were mostly positive regarding improvements in the economy. For instance, manufacturing activity has largely picked up since the summer, an acceleration that is welcome after softness over the past year or so. Reports from the Chicago, Dallas and Richmond Federal Reserve Banks support this, with stronger paces for new orders and production in each region. This is especially true when you look at the mostly positive assessments of future sales and output, with large percentages of survey respondents anticipating rising activity levels. The good news extends to better—although still modest at best—hiring plans. The pickup in the manufacturing sector has also been one of the positive factors helping the Conference Board’s Leading Economic Index (LEI) expand for four straight months, an encouraging sign for the economy for the coming months.

Yet, even among these promising reports, there were signs of continuing softness for the sector. In the Dallas Federal Reserve survey, respondents were more upbeat about their own company’s outlook than they were about the larger macroeconomy. In fact, the index for perceptions about the economy as a whole declined from 3.6 to 1.9, with 65.0 percent of respondents not expecting macroeconomic conditions to improve over the next six months. In addition, the data on new durable goods orders found broad-based softness in the sector in contrast to the various sentiment surveys. Declines in October sales went beyond the decrease in aircraft orders. Moreover, while new durable goods orders have risen 5.3 percent since October 2012, year-to-date growth in durable goods orders—excluding the highly volatile transportation sector—has increased just 0.9 percent.

Similarly, the latest housing market data were also somewhat mixed. New housing permits in October soared to more than 1 million annualized units for the first time since April. To the extent that permits serve as a proxy for future residential construction activity, this was an encouraging development. Yet, the ascent in the permitting data came entirely from multifamily units, with single-family home permits essentially stalled. Higher mortgage rates have been a factor in dampening current demand for new construction; however, the average 30-year mortgage rate of 4.29 percent last week was better than early September’s 4.57 percent. Meanwhile, new housing starts data were delayed until the December 18 release due to the government shutdown, somewhat hampering our ability to analyze the housing market beyond permits.

By now, the holiday shopping season is in high gear. We will need to wait for final numbers on whether retail spending increased over last year, although the National Retail Federation reported mixed results despite deep discounting over the Thanksgiving holiday weekend. We also need to closely look at consumer confidence, particularly in determining how willing Americans will be to open their wallets. The two measures of consumer sentiment released last week moved in opposite directions, providing a bit of confusion regarding current attitudes. The Conference Board’s consumer confidence data fell again in November, with respondents suggesting reduced buying intentions. October’s budget impasse was not helpful, but overall sentiment has been lower since June. In contrast, the University of Michigan and Thomson Reuters surprised many with a better-than-expected final reading of its consumer sentiment index, improving from the preliminary report released just two weeks prior. Despite the recent gain, however, this report remains below the six-year high achieved in the summer.

This week will be a very busy one on the economic front. Later this morning, we will learn more about the strength of the pickup in manufacturing activity in the Institute for Supply Management’s Purchasing Managers’ Index, and on Wednesday, new international trade figures will show whether improving economies in many of our major trading partners will increase our exports. In addition, the bigger headlines will come on Thursday and Friday with a revision to third-quarter real GDP and the jobs report for November. Other highlights will be the Federal Reserve’s Beige Book and new releases on construction spending, factory orders, personal income and vehicle sales.

Chad Moutray is the chief economist, National Association of Manufacturers.

midwest manufacturing index - dec2013

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Reduced Aircraft Sales and Broader Weaknesses Send New Durable Goods Orders Lower in October

The Census Bureau said that new durable goods orders declined 2.0 percent in October. This data has been highly volatile over the past year or so, with wide swings due largely to increases or decreases in aircraft sales. Indeed, following a significant increase in September, defense and nondefense aircraft orders were off sharply in October. If you were to exclude transportation orders from the analysis, new orders would have fallen by just 0.1 percent.

On a year-over-year basis, durable goods orders have been on a slow-but-steady rise higher, with sales up 5.3 percent between October 2012 and October 2013. Excluding transportation, new durable goods orders rose 4.3 percent. Still, in the broader durable goods sector, growth has been relatively flat for much of this year. Indeed, new durable goods orders excluding transportation have edged only marginally higher since January, up just 0.9 percent. This suggests broader weaknesses in the manufacturing sector despite recent improvements in activity seen in other indicators.

Looking at the various sectors, new orders data were mostly mixed, reflecting this weakness. There were increased sales in October in the electrical equipment and appliances (up 2.8 percent), motor vehicle and parts (up 1.7 percent), primary metals (up 0.5 percent), and computers and electronic products (up 0.3 percent) sectors. Yet, these gains were counterbalanced by reduced new orders in the following segments: fabricated metal products (down 1.5 percent), machinery (down 0.3 percent), and all other durable goods (down 0.1 percent).

Core capital goods – or nondefense capital goods excluding aircraft – were down 1.2 percent, further highlighting softness in total durable goods sales in October. Yet, on a year-over-year basis, new core capital goods orders have risen 3.6 percent, suggesting modest gains overall.

Meanwhile, shipments of durable goods increased 0.2 percent in October, the third straight monthly gain. Since July, shipments have risen 1.7 percent, with year-over-year growth of 4.8 percent.  The largest increases in October shipments were in the nondefense aircraft and parts (up 2.4 percent), motor vehicles and parts (up 1.7 percent), machinery (up 0.8 percent), and primary metals (up 0.5 percent). These were somewhat offset, though, by declining shipments in the computer and electronic products (down 2.6 percent) and defense aircraft and parts (down 1.2 percent).

Chad Moutray is the chief economist, National Association of Manufacturers. durable goods

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Monday Economic Report – September 30, 2013

Here is a summary of this week’s Monday Economic Report:

Increases in consumer spending and business investment in the second quarter boosted the economy, with the government announcing real GDP growth of 2.5 percent last week in its latest revision. This did not change from its previous estimate. Nonetheless, even with modest gains in the second quarter, the United States has grown too slowly in the first half of 2013, up just 1.8 percent. There have been some indications that manufacturing activity and other data have accelerated recently. Surveys show that manufacturers are generally positive about higher orders and production moving forward. Yet, it is also clear that persistent headwinds have prevented even faster economic growth. I anticipate real GDP growth of 2.0 percent for the third quarter.

While manufacturing activity has accelerated of late from weaknesses seen in the spring and early summer, data released last week showed some easing in new orders and the overall pace of growth. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) declined slightly from 53.1 in August to 52.8 in September. The lower figure stemmed largely from an easing in sales growth, with new export orders down somewhat. Hiring continues to be positive, but sluggish. Along those lines, manufacturing surveys from the Kansas City and Richmond Federal Reserve Banks also noted some disappointing results for September, pulling back from increases observed in August. In addition, durable goods sales edged higher in August, but new orders data generally disappointed, particularly when you look at the broader market.

Overseas data suggest that the economies in China and Europe continue to stabilize, with PMI readings showing expansion for three straight months in the Eurozone and two consecutive months in China. Hopefully, improvements in the global marketplace will result in increased exports ahead; although, that continues to be a challenge so far this year.

Meanwhile, consumer confidence has ebbed lower, with political gamesmanship and labor market concerns dampening sentiment. Americans responded less positively in surveys from both the Conference Board and the University of Michigan. In each case, the longer-term trend reflects upward movement from earlier in the year or relative to past years, but the recent declines have still been notable. At least for now, however, the reduction in consumer perceptions about the economy has not impacted overall spending behavior, at least not too much. Personal spending rose modestly in August, with year-over-year growth at 3.2 percent. This indicates a faster annual pace than in previous months, suggesting a bit of a rebound.

Looking at the housing market, new home sales rose 7.9 percent in August, recovering somewhat from the sharp drop in July. Higher borrowing costs have reduced residential sales activity, but with the Fed deciding not to taper at its last meeting, mortgage rates have begun to fall, which should be beneficial in the short term. Freddie Mac reported the average 30-year mortgage rate at 4.32 percent last week, down from 4.50 percent the week before. Still, this remains a full percentage point higher than that from the first week of May.

This week, the largest headlines will come on Friday with the release of September’s jobs numbers. Nonfarm payrolls are anticipated to show an increase of around 170,000, or roughly the same as in August. Manufacturing hiring should be positive, but only barely so. The other big news will come tomorrow with the September PMI figures from the Institute for Supply Management. Similar to other sentiment surveys, the consensus expects a modest pullback in the index, with growth easing from the strong rebound noted in both July and August, particularly for new orders. We will also get the latest reports on manufacturing activity from the Chicago and Dallas Federal Reserve Banks and new data on construction spending and factory orders.

Chad Moutray is the chief economist, National Association of Manufacturers.

personal income and spending - sept2013

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Monday Economic Report – July 29, 2013

Here is the summary for this week’s Monday Economic Report:

For the most part, manufacturing activity continues to improve from weaknesses during the spring. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 51.9 in June to 53.2 in July, suggesting modest growth overall and increases in new orders, output and employment. This included export sales, which contracted in June and have been slow so far in 2013. Meanwhile, the Kansas City Federal Reserve Bank’s composite index was up from -5 to 6, echoing similar improvements in the New York and Philadelphia districts. Of the regional Fed manufacturing surveys for July released so far, only the Richmond Fed’s respondents noted weaknesses, with surprisingly sharp declines in sales for that district. All of the surveys, however, reflect cautious optimism for the second half of the year. Similarly, the latest consumer confidence figures from the University of Michigan suggest sentiment has reached a six-year high.

The Census Bureau’s advance estimates of new durable goods orders provided mixed comfort on the current state of that sector’s sales environment. Strong demand for aircraft orders lifted the volume of new orders to an all-time high. Yet, when you exclude transportation from the analysis (which would also include higher auto sales), weaknesses persist in the broader industry. Without transportation, new orders would have been unchanged, and they have edged up just 1.0 percent since January. The latest National Association for Business Economics (NABE) Industry Survey gives further credence to this, with respondents noting slower sales and earnings in the goods-producing sectors (which include manufacturing) in the second quarter. Nonetheless, business economists anticipate a pickup in activity over the next year, with 70 percent of respondents expecting real GDP growth of between 2.1 and 3.0 across the next 12 months.

In international markets, exports have been slow in the early months of 2013, with particular weaknesses in Europe. The good news last week was the surprisingly positive Markit Flash Eurozone Manufacturing PMI report, with its composite index for July measuring 50.1. This was its first reading above 50—the threshold for expansion—since June 2011. While Europe still has significant issues to work through, the increase in demand and uptick in output were welcome developments and perhaps indicate some stabilization. The PMI data gave markets a huge psychological boost, with many analysts suggesting that Europe might have turned the corner. In contrast, China’s economy continues to decelerate. The HSBC Flash China Manufacturing PMI declined to 47.7 in July and has now contracted for three straight months.

This week will be a big one on the economic front. The key headline to watch will come on Wednesday with the release of second-quarter real GDP, with economists revising their estimates lower in the past few weeks to 1 percent or less. If the Bureau of Economic Analysis confirms this, it would suggest extremely sluggish growth in the first half of 2013, with first-quarter growth recently revised down to 1.8 percent. In addition to output, we will also get the latest PMI data from the Institute for Supply Management (ISM) and employment numbers for July. Hopefully, the ISM data will mirror the progress seen in the Markit data discussed above. The jobs figures will be watched closely to see if the manufacturing sector can reverse its recent declines in hiring.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – May 28, 2013

Here is the summary from this week’s Monday Economic Report:

Manufacturing activity worldwide has slowed noticeably. Flash Purchasing Managers’ Index (PMI) data for China and the Eurozone both reflect contracting levels for new orders, exports and employment. Europe’s problems continue to deepen. Even with some slight easing of declining sales, May’s manufacturing PMI data mark the 22nd consecutive month of declining activity for the continent. Beyond falling activity levels, manufacturers have also reported the need to reduce the selling price for their goods. The news that China had once again slipped into negative territory was a little surprising, suggesting its economic growth has slowed again. Over the course of the next few weeks, international PMI data will come in, allowing us to see the widespread softness in the manufacturing sector. The most recent JPMorgan Global Manufacturing PMI suggested that growth worldwide was modest at best.

The Markit Flash U.S. Manufacturing PMI declined slightly from 52.0 in April to 51.9 in May, falling from 56.1 in January. One of the largest factors in May’s decline was the decrease in new export orders. Output and hiring also slowed, and domestic new orders have decreased since the beginning of the year. At the same time, the Chicago Federal Reserve Bank’s National Activity Index (NAI) declined in April, largely on weaknesses in industrial production in the early months of 2013. (continue reading…)

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Monday Economic Report – February 4, 2013

Here is the summary for this week’s Monday Economic Report:

Manufacturing activity picked up somewhat in January, according to several reports that came out last week. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rose from 50.2 in December to 53.1 in January. Stronger sales and production data helped to lift this index higher, with export growth still lagging (but no longer declining). The data was mirrored in the latest surveys from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks. New durable goods orders were also higher in December, mainly due to increased aircraft sales.

The sentiment surveys tended to show an uptick in hiring in January, which might be a gauge of future activity. However, for now at least, the data show that employment growth in the sector has been slow at best. The ADP payroll data suggest that manufacturing employment contracted in January, while the government report showed that manufacturers added just 4,000 workers during the month. It is hard to ignore the significant slowdown in hiring that took place among manufacturers during the second half of 2012, with worries about sales and the economic outlook taking a toll on hiring and investing. While the larger economy added roughly 180,000 workers on average each month last year—a figure which is decent, but still not strong enough to bring the unemployment rate down—manufacturers only gained 11,000 additional workers in the last six months of the year.

Much of the economic uncertainty was tied to the fiscal cliff negotiations, with upcoming debates on the budget and deficit still causing uncertainty for many manufacturers. With the debt ceiling conversation postponed until mid-May, all eyes will now focus on the across-the-board federal budget cuts scheduled for March 1 and the possibility of a government shutdown on March 27. The fiscal cliff’s impact can be seen in the economic data as well, with manufacturing activity falling and consumer and business confidence indicators plunging. Dividends rose sharply at the end of the year (up 34.3 percent in December), as companies tried to accelerate these payments in anticipation of higher dividend taxes. The result was a 2.6 percent rise in personal income, pushing the savings rate up to 6.5 percent, its highest level (albeit a temporary one) in nearly four years.

The Federal Reserve Board reported that the economy “paused” at the end of 2012, referencing both Hurricane Sandy and the political wrangling over the fiscal cliff. Beyond that, however, the Federal Open Market Committee (FOMC) made little news. It continued the stimulative policies put in place in December, with new rotating members of the FOMC voting much like the old ones did. Kansas City Federal Reserve Bank President Esther L. George picked up the mantle of her fellow inflation hawks by being the lone dissenter.

This week is a much slower one on the data front. The key data to watch for will come on Thursday with new labor productivity numbers and on Friday with the latest international trade figures. The export data will be closely followed as it will be the first to show activity for all four quarters of 2012.

Chad Moutray is the chief economist, National Association of Manufacturers.

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New Durable Goods Fell in June on Weaknesses in Transportation Sector

The Census Bureau reported that new orders for durable goods fell 2.1 percent in June, more than offsetting the 1.9 percent rebound in May. The bulk of this decline stemmed from the transportation sector, with new orders for transportation equipment off 8.5 percent. Other sectors with monthly losses include capital goods (down 4.1 percent) and machinery (down 2.3 percent). The largest gains for the month were in the communications equipment (up 15.2 percent) and fabricated metal products (up 2.1 percent) sectors.

In contrast to new orders, shipments of durable goods rose 0.5 percent in June for the second month in a row. The increase was led by gains in shipments from non defense aircraft and parts (up 3.6 percent), primary metals (up 2.8 percent), and machinery (up 2.6 percent). The largest declines in durable goods shipments were found in the computer and electronic equipment (down 1.8 percent), defense capital goods (down 1.6 percent), and motor vehicles and parts (down 1.5 percent) sectors.

Inventories were up for the 18th straight month, with a 0.4 percent increase; meanwhile, unfilled orders increased 0.2 percent.

Overall, this report highlights continued weaknesses in the durable goods sectors, much as we have discussed before. The decline in new orders in June was dominated by decreased sales of civilian aircraft and a decline in auto production. Yet, even without those sectors, growth was flat. This release lends further credence to weak real gross domestic product data for the second quarter of 2011, which will be released on Friday.  I am expecting to see 1.3 percent growth for the quarter.

Moving forward, production in durable goods should pick up in the second half of this year. With that said, we will need to see more impressive growth in new orders in July and August if that is to come to fruition.

Chad Moutray is chief economist, National Association of Manufacturers.

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Outside of Transportation, Durable Manufacturing Orders Gain Traction in November

Despite a bigger-than-expected decline of 1.3 percent, today’s Commerce Department’s advanced report on durable goods for November shows that manufacturing continues to lead the economy out of recession.  The overall decline in orders was driven by an 11.9 percent plunge in transportation orders, which are extremely volatile from month-to-month.  The good news in today’s report is that outside of motor vehicles and aircraft, new orders for durable manufactured products rose a strong 2.4 percent – the third increase in the past four months and the fastest monthly rise in eight months. 

 The gains last month were diffuse, taking place in every industry outside of transportation, ranging from metals, to machinery, to electrical equipment, to computers and communications equipment.  And for most of these industries, this was the second increase in the past three months, which signals that the manufacturing recovery is gaining some traction in the fourth quarter after production moderated in the third quarter. 

 After slowing in recent months, new orders for nondefense capital goods excluding aircraft, rebounded in November and grew by a solid 2.6 percent.  Given that these orders are a good proxy for business investment and exports, today’s report is a hopeful sign that manufacturing will continue to lead the economic recovery.

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