Trade Resources Industry Trends New Orders to U.S. Production Plants Soared a Record 10.5% in July

New Orders to U.S. Production Plants Soared a Record 10.5% in July

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New orders to U.S. production plants soared a record 10.5 percent in July on a 74 percent bookings spike in the volatile transportation sector. The somewhat misleading double-digit gain was propelled by an eye-popping 317.3 percent surge in demand for civilian and commercial aircraft as well as a 97.7 percent leap in new orders for ships and boats. Excluding the heady transportation numbers, U.S. factory orders actually fell 0.8 percent in July, while new orders for core capital goods, a key indicator of business spending, declined 0.7 percent.

Industry Crib Sheet: Manufacturing Expected to Continue to Rumble

Still, the out-of-ordinary headline figure was welcomed by economists, especially alongside the Institute for Supply Management's highest manufacturing index reading in nearly three-and-a-half years. ISM's manufacturing PMI reached 59 in August, while the new orders sub-index of 66.7 was the highest in more than decade, suggesting that the July dip in the non-transportation federal data may be short-lived. "It reinforces the current narrative of improving domestic economic fundamentals," Millan Mulraine, deputy chief economist at TD Securities, told Reuters.

Closely monitored orders for motor vehicles and parts rose 7.3 percent. When the transportation sector is accounted for, overall orders for durable goods jumped 22.6 percent in July. The wave of bookings for automobiles, aircraft, and marine craft more than negated setbacks in all other major goods categories defined by the Commerce Department, including primary metals, machinery, computers and electronic products, and electrical equipment and appliances.

However, U.S. manufacturing facilities are expected to continue to roll, as they are working on all-time-high backlogs and shipped out a record $249.3 billion of durable goods in July. In a separate report released earlier by the Federal Reserve, the U.S. manufacturing sector expanded 1 percent in July, the largest monthly increase since February, and capacity utilization at durable goods plants was well above their long-run average. ISM's August production sub-index rose a solid 3.3 points to 64.5, showing continued strength in manufacturing activity through last month.

Manufacturing and business spending have been credited for the nation's second-quarter rebound in gross domestic product, which the Commerce Department now estimates to be a 4.2 percent expansion. The federal government reported earlier that investment in new equipment by businesses grew at an annual rate of 10.7 percent from April through June. GDP growth estimates for the third quarter currently are between 3 and 3.5 percent.

The 10.5 percent spike in new factory orders was 9 points over June. The Census Bureau revised its June new orders figure from a 1.1 percent increase to a 1.5 percent expansion. It also revised its June reading for core capital goods bookings from an already solid 3.3 percent rise to a sizable 5.4 percent gain. While orders for core capital goods contracted in July, some bright spots in business equipment orders included a 14.8 percent increase for industrial machinery, an 8.6 percent rise in mining and oil and gas machinery, a 2.8 percent increase in metalworking machinery, and an 11.2 percent surge in communications equipment.

Durable goods manufacturers' backlogs ballooned 5.4 percent to another record high after increasing 1 percent in June. Inventories at durable goods factories grew 0.5 percent, following a 0.4 percent rise the previous month. Manufacturers accelerated their shipment volumes with a 1.2 percent increase, which was faster than the 0.8 percent pace in June.

These data differ from those in ISM's manufacturing report, which showed inventory and backlog contractions in July. But unfilled orders and unmoved product at manufacturing facilities both reversed trajectory in August, growing 3 percent and 3.5 percent, respectively, according to the trade group. The PMI headline number grew 1.9 points last month, and ISM said the nation's manufacturing sector expanded for the 15th month in a row.

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Industry Crib Sheet: Manufacturing Expected to Continue to Rumble
Topics: Hardware