New Orders for Durable Goods and Spending Show Significant Improvement in March

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Researched by Industrial Info Resources (Sugar Land, Texas)--This February was a down month for several key economic indicators in the United States. Spending took a dramatic dip, and while new orders and shipments of durable goods saw only modest increases during the month, durable goods inventories and unfilled orders did slightly better, but not significantly so. However, it appears as though the month of February was just a slight adjustment in the rate of recovery as overall industrial spending boomed in March, while new orders for manufactured durable goods and shipments of durable goods both saw significant increases.

February was almost an embarrassing month for industrial spending in the U.S. After months of significant spending gains and signs of solid recovery, the industrial market had a hiccup in February, only seeing $5.4 billion in total spending for the month. However, a month later, we can see that this was only a misstep on the road to total recovery. In March industrial spending boomed, topping out at slightly less than $20 billion for the month, representing a significant increase. The Power Industry was the driving force behind the spending increase during March with $8.7 billion worth of project activity beginning construction during the month. Several other industries, including the Oil & Gas Production, Chemical Processing, Metals & Minerals, Food & Beverage, Industrial Manufacturing and Pharmaceutical & Biotech industries all saw more than $1 billion each in total spending for the month.

There was no single area of the country that saw a significant boom in spending in March, but rather spending was rather spread out. Six regions of the country, the Great Lakes, New England, Rocky Mountains, Southeast, Southwest and the West Coast, all saw spending in excess of $2 billion for the month, while the Southeast actually topped $3 billion. The Mid-Atlantic, Midwest and Northeast regions of the country, while not seeing quite as much spending, still produced more than $1 billion in total spending each for the quarter.

New orders for manufactured durable goods increased 2.5% in March, which marked a significant increase from February's modest 0.7% adjusted increase. This boost in orders was driven by several key sectors that saw significant increases during the month. New orders of primary metals were up 3.9% for the month, while machinery orders increased 4.2%. Computer and related products orders increased 10.4%; electrical equipment, appliance and component orders increased 3.1%; and transportation equipment orders increased by 5.9%. Transportation orders were driven by a 3.7% increase in motor vehicle and parts orders, as well as a 6.3% increase in defense aircraft and parts. Only communications equipment, down 3.4%, and fabricated metal products, down 2.5%, saw significant decreases for the month.

Shipments of durable goods increased 1.8% during the month of March, thanks to a strong showing among the majority of the key categories tracked. Shipments of primary metals, up 2.6%; machinery, up 4.3%; computers and related products, up 3.4%; motor vehicles and parts, up 3.9%; nondefense aircraft and parts, up 2.9%; and defense aircraft and parts, also up 2.9%, all drove the overall increase for the month. Some of these increases, especially those in the motor vehicles sector may have had something to do with the shortages created by the earthquakes and resulting tsunami in Japan, as American automakers raced to fill the void left by Japanese automakers in North America, but it will really be in the coming months where those increases will show more prominently.

Both unfilled orders for manufactured durable goods and inventories of the same saw similar increases to what occurred in February. Unfilled orders increased 0.8% in March, after increasing 0.7% in February, while inventories increased 1.3% in both months. Both of these indicators saw increases in primary metals, 1.4% each; machinery, 1.6% in unfilled orders, 1.2% in inventories; and transportation equipment, .8% in unfilled orders and 1.9% in inventories. Unfilled orders in the computers and electronic products sector saw no gains or losses, while inventories in the same sector increased 1.7%. Both indicators saw slight gains in the fabricated metal products sector.

Overall, March was obviously a month of recovery after February's dismal showing. However, post-tsunami, there should be some significant changes coming in many of these indicators in the coming months. Transportation obviously will be affected heavily, given the problems facing the Japanese automakers and the American automakers' attempts to wrestle that market share away from their overseas competitors. In addition, the aircraft sector and electronics sectors could see some activity as a result of shortages in the months to come. As long as spending continues to remain solid in the coming months, the economic recovery should continue at a solid pace. The real question during the summer will be how high will the price of oil get, and how will that effect the overall economy this summer?

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.