Durable Goods Orders Increase as Construction Begins to Decline in September

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Researched by Industrial Info Resources (Sugar Land, Texas)--The third quarter ended with mixed results for durable goods, as the Department of Commerce released its September figures this week. Orders increased 3.3% for the month, but shipments of manufactured durable goods decreased during the same period. Construction starts also declined for September, while both unfulfilled orders of manufactured durable goods and inventories of manufactured durable goods increased.

The volatile transportation sector continued to drive durable goods orders, as it does every month. Orders for non-defense aircraft and parts were up 105% for September, while orders for motor vehicles and parts decreased 0.4%. Overall, the transportation equipment sector saw a 15.7% gain for the month, which drove the overall durable goods orders in September.

If the wildly fluctuating transportation equipment sector was excluded, durable goods orders declined 0.8% for the month, not a sign of solid recovery across the board. Orders for primary metals, fabricated metal products and communications equipment all declined for the month, while orders for machinery, computers and computer-related products, and electrical equipment, appliances and components increased slightly.

Unfulfilled orders increased for machinery; computers and computer-related products; electrical equipment, appliances and components; nondefense aircraft and parts; and defense aircraft and parts. This is solid evidence that durable goods manufacturers are operating fewer plants, thanks to closures during the recession, at a higher level of production. This could also indicate expansion will be in order in the coming months if unfulfilled orders become a problem.

Construction starts in the U.S. decreased by $2 billion for the month as $10.3 billion in capital and maintenance projects reached the construction stage in September. This wraps up a very turbulent third quarter in terms of construction starts. In July, only $9.9 billion in projects began construction, and in August that increased to $12.7 billion before taking a dive in September.

The Power Industry drove spending for the month, with just more than 100 capital or maintenance projects worth an estimated $3.8 billion beginning construction activities. The Industrial Manufacturing Industry at $1.9 billion in spending and the Pharmaceuticals and Biotech Industry at $1 billion also helped boost spending for the month. Several other industries, namely the Food and Beverage Industry, the Pulp and Paper Industry, the Metals and Minerals Industry and the Chemicals Industry, saw between $500 million to $900 million in construction starts as well.

While spending has remained solid this summer, it has not consistently increased from month to month. If demand for durable goods continues to increase, this spending trend will reverse itself and we will see consistent gains in total construction starts from month to month. However, with winter rapidly approaching, this is unlikely to occur in the next few months as weather concerns typically slow down construction activities across much of the country. Hopefully by next spring, spending will stabilize as companies look to address the unfulfilled orders that appear to be building up in many sectors which, in turn, could lead to additional durable goods orders as the overall economy improves.

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