Despite $15 Billion in Construction Starts, Durable Goods Orders Slump in April

---

Researched by Industrial Info Resources (Sugar Land, Texas)--The economy had been rocking along for the last six months, constantly gaining in most key economic areas as the United States continues to recover from the recession. March proved to be a month of interesting tidings, with the tsunami and earthquakes that ravaged Japan causing some significant problems in the U.S., as automotive supplies and parts dried up, while the electronics and aircraft markets felt some of the strain as well. However, April was shaping up to be a better month despite continuing Japan-related supply problems, at least until the Department of Commerce, through the U.S. Census Bureau, released its durable goods numbers on Wednesday. Durable goods orders saw their largest drop in six months in April, despite the fact that industrial spending remained strong, with more than $15 billion in capital and maintenance projects beginning construction activities in the U.S.

The transportation equipment sector dragged total durable goods orders down 3.6% in April. Overall, the transportation equipment sector saw a 9.5% decline on its own, with the highly volatile nondefense aircraft and parts sector declining 30% for the month. The Boeing Company (NYSE:BA) (Chicago, Illinois) saw only two new orders in April, a significant decline from March's 98 new orders. While this kind of swing in orders is nothing new for this sector, it comes at a bad time, after the disruptions caused by the natural disasters in March. Hopefully, this kind of large downswing in orders in the nondefense aircraft sector will only be a single-month occurrence.

Almost every sector saw declines in new orders during the month. Primary metals and fabricated metal products orders were down 1.6% and 1.1%, respectively, while the machinery sector saw orders decline 3.4%. Electrical equipment, appliances and components saw its order numbers drop by 4.9% in April, while defense aircraft, much like non-defense aircraft, dropped 8.9%. The communications equipment sector saw orders decline 3.4%, and the computers and related products sector saw a 4.4% drop.

Shipments of manufactured durable goods continued their decline in April. Down for four consecutive months, shipments dropped an additional 1% during the month. The decline in shipments was especially bad in the machinery sector, where they declined 4.1% and the transportation equipment sector, where there was a 3% drop. However, one bright spot in shipments was the computers and electronic products sector, which saw a 3.5% increase for the month, thanks to the 2.5% rise in communications equipment orders. It will be several more months before we see if the events in Japan continue to effect shipments throughout the summer.

Both unfilled orders and inventories continued to climb in April, with unfilled orders, up for 12 of the past 13 months, increasing by 0.2%. Inventories, which have increased for 16 straight months rose by 0.9%. In both indicators, the machinery sector saw positive growth, as did the electrical equipment, appliances and components sector. In the fabricated metal products sector and the transportation equipment sector, there was growth in total inventories but unfilled orders saw neither growth nor a decline for the month.

No single industry dominated the total industrial spending for April in the U.S. The Power Industry, always a consistent spender, saw $3.8 billion in capital and maintenance projects begin construction activities, while the Oil & Gas Production Industry contributed $2 billion in project activity. The Industrial Manufacturing Industry added $1.5 billion to the total. The project spending was also spread around the U.S., with no particular area seeing the bulk of the activity. The Southwest region of the country saw the most projects begin construction, with 154 projects worth an estimated $3.1 billion beginning, while the Great Lakes region saw an additional 116 projects worth $2 billion begin construction. The Midwest region contributed 68 projects worth $1.8 billion.

Hopefully, April's slump is just a hiccup in the road to recovery. Given the problems the disasters in Japan have caused in the U.S., it is not surprising to see a modest slump, for at least one month. With the Japanese companies working non-stop to get production back up to speed as soon as possible, this slump should be a short one, although a shaky market and housing numbers have caused some concern across the country and could lead to additional weeks of slow orders. If the government does not address the debt ceiling problem sooner, rather than right at the deadline, the U.S. could see a significant slump in the coming months, but the country will have to rely on its representatives in Washington to get off their collective rumps and do what needs to be done in a rapid fashion, rather than waiting until the deadline is on us to act and forestall additional problems across the economy.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.