New Orders of U.S. Manufactured Durable Goods Increase in July 2012, Backed by Solid Industrial Spending

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Researched by Industrial Info Resources (Sugar Land, Texas)--The report on new orders for manufactured durable goods that is released by the U.S. Census Bureau each month is one of the key indicators of how the U.S. economy is performing, as well as an indicator as to which direction the economy is heading in the coming months. For the last three months, durable goods orders have been on the rise, but not at a pace that would indicate significant growth ahead. In July, that changed a bit as the new orders jumped 4.2% on the strength of significant transportation equipment sector growth and was backed by very solid industrial spending. However, economists are predicting that even with July's impressive numbers, the signs of recovery are mixed at best.

Click on the image at the right to see a graph detailing U.S. projects with a construction start date in July 2012 by industry.

A more detailed examination of the six key sectors that are prime indicators of growth in July's durable goods numbers shows that the significant growth seen during the month, driven by a 53.9% increase in nondefense aircraft and parts orders, was not totally positive. Of the six sectors, three showed growth and three declined in July. The transportation equipment sector saw the most growth, increasing 14.1%, while the primary metals sector saw orders increase 2.7%, and the computers and electronic products sector saw orders grow 1%. On the negative side, the fabricated metal products sector saw its orders decline 0.4%, the machinery sector's orders were down 3.6%, and the electrical equipment, appliances and components sector saw a 2.1% drop in orders.

Outside of the nondefense aircraft and parts sector, the largest growth was seen in the motor vehicles and parts sector, another subsector that makes up the transportation equipment sector, which saw orders increase 12.8% in July, the largest increase in a year. The transportation equipment sector has always been extremely volatile. Each month, aircraft orders cause significant shifts in the overall durable goods orders numbers, and they can shift very dramatically. This makes it difficult to judge the overall state of the economy. If you look at the durable goods orders for July without including the transportation equipment sector, orders decreased 0.4%, the second month in a row that has occurred. That gives economists pause when predicting the overall condition of the economy.

The three other indicators that are released at the same time as the new orders figures all showed positive results in July. Shipments of durable goods, which have increased for seven of the last eight months, increased again in July, growing 2.6%. Unfilled orders of durable goods increased 0.8%, marking an increase for consecutive two months, and the inventories of durable goods, which have increased for 30 of the last 31 months, again increased 0.7% in July. The shipments figures saw growth in the same three sectors as durable goods orders and declines in the same sectors, with the most growth within the transportation equipment sector, which increased 8.4%. Unfilled orders and inventories both saw growth in only two sectors--transportation equipment and computers and electronics products--and saw declines in the primary metals and electrical equipment, appliances and components sector, and mixed results in the fabricated metal products and machinery sectors.

Looking at the spending side of the equation, $13.9 billion worth of industrial projects began construction activities during July in the U.S. Six industries saw the most work begin construction: the Power Industry at $2.9 billion, the Oil & Gas Transmission Industry at $2 billion, the Chemical Processing Industry at $1.9 billion, the Industrial Manufacturing Industry at $1.7 billion, the Metals and Minerals Industry at $1.5 billion and the Oil & Gas Production Industry at $1.2 billion. The spending for the month was spread around the country, with six regions garnering the majority of the project work. The Southwest region saw $3 billion in construction starts, while the Southeast region added $2.4 billion and the Great Lakes region contributed $2.2 billion. The other three regions, the Mid-Atlantic, the West Coast and the Rocky Mountains, each saw between $1.2 billion and $1.9 billion in construction starts for the month.

While the overall indications are that the economy is slowing down, the increases in orders for the last three months is a good sign of some growth. Back that up with the very solid industrial construction starts numbers that have been occurring each month this year, and while things have begun to slow down slightly, the economy still appears to be headed in the right direction. However, with oil and gas prices increasing again, some of the spending may stall in the coming months as companies reallocate resources to take increasing prices into consideration. A lot will depend on how harsh the coming winter is and that will not be something that can be judged for many months. Last winter was extremely mild, and that contributed to the fast start in industrial spending that occurred in the U.S. in 2012. Hopefully, this coming winter will be just as mild and the spending can continue to remain strong, which will only help the durable goods figures for months to come.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info'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.