US factory orders surged in June due to increased demand for transportation equipment.
US factory orders surged in June due to increased demand for transportation equipment.
Strong Demand for US-Made Goods Despite Higher Interest Rates
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Despite higher interest rates and concerns over a manufacturing recession, new orders for U.S.-made goods have surged in June, showcasing the resilience of the industry. The strong demand for transportation equipment and other goods has provided a glimmer of hope for manufacturing.
The Commerce Department revealed that factory orders rose by 2.3% in June, following a 0.4% increase in May. This increase exceeded expectations, as economists surveyed had forecasted a 2.2% acceleration. Moreover, on a year-on-year basis, orders advanced by 0.9% in June.
These “hard data” indicate that the manufacturing sector continues to hold on, despite the Federal Reserve’s decision to increase interest rates by 525 basis points since March 2022. However, sentiment surveys paint a different picture, suggesting that manufacturing is currently in a recession.
The Institute for Supply Management reported that its manufacturing PMI has contracted for the ninth consecutive month in July, marking the longest period of contraction since the 2007-2009 Great Recession. It appears that spending on long-lasting manufactured goods has slowed down, with services such as airline travel and amusement parks gaining popularity.
Although manufacturing as a whole faces challenges, there are pockets of strength within the industry. Orders for transportation equipment saw a significant jump of 12.0% in June, following a 4.2% increase in the previous month. The surge in orders was particularly pronounced for civilian aircraft, which saw a staggering 69.4% increase. Motor vehicle orders also rose by 0.9%.
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The demand for computers and electronic products also saw a notable increase of 1.6%, while electrical equipment, appliances, and components orders advanced by 1.5%. On the other hand, machinery orders experienced a slight decline of 0.2%.
Although the increase in orders is positive, it’s worth noting that shipments of manufactured goods only increased by 0.1% in June, indicating a potential lag in production. However, there is hope as unfilled orders at factories increased by 1.8%, which suggests that production may receive continued support.
In addition to the overall surge in factory orders, the Commerce Department also reported that orders for non-defense capital goods (excluding aircraft), which are considered a measure of business spending on equipment, rose by 0.1% in June. This revised estimate slightly lowered the previously reported 0.2% increase. Shipments of these core capital goods showed a similar modest increase of 0.1% in June.
This positive growth in business spending on equipment during the second quarter is particularly noteworthy as it signals a rebound in investment after two consecutive quarters of contraction.
In conclusion, despite concerns over higher interest rates and manufacturing recessions, the U.S. manufacturing sector has shown pockets of strength in June. The surge in orders for transportation equipment and other goods suggests that there is still demand for American-made products. However, challenges in the industry remain, as sentiment surveys indicate ongoing contraction. It will be crucial to closely monitor the manufacturing sector’s performance in the coming months to ascertain its true trajectory.
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