New orders for durable goods rose 0.4 percent in April, after gaining 0.6 percent in March, the sixth increase in seven months. Total durable-product orders increased 9.7 percent from a year earlier. April profits put total sustainable-goods order volume at $ 265.3 billion, the second highest on record (see first chart).
New orders for non-defense capital products other than aircraft, or a proxy for investing in capital goods, business equipment, rose 0.3 percent in April after jumping 1.1 percent in March. Orders rose 10.6 percent to $ 73.1 billion a year earlier, a new record high (see first chart). However, accelerated price increases affect capital product orders. In fact, after adjusting for inflation, new orders for non-defense capital goods in March were $ 45.7 billion, measured at 198 1982, a historic high but a record high (see first chart). Furthermore, producer prices for consumer durable goods rose 0.9 percent in April, while producer prices for capital equipment rose 1.2 percent, suggesting that, in real terms, new orders for durable goods could decline in April.
Almost every category (five out of seven) in the Sustainable Products report showed a gain in April, although the growth was slight. Among the individual segments, equipment orders led 1.0 percent growth, followed by both transport equipment and primary metals with 0.6 percent growth, all other sustainable 0.3 percent growth and computer and electronic products with 0.1 percent growth. In the transport equipment segment, motor vehicles and parts were down 0.2 percent, but non-defense aircraft grew 4.3 percent, and defense aircraft grew 1.0 percent. Manufactured metal products and electrical equipment and appliances both declined 0.1 percent (see second chart). From a year ago, each major division showed a solid gain.
Production of sustainable products is increasing despite labor exploration and retention, equipment shortages and logistical problems. Output from the Federal Reserve is measured by both the production of industrial products for sustainable products and the value of shipments of manufacturers of sustainable products, above the peak in 2018 before the 2020 lockdown recession (see Chart 3). Nevertheless, the backlog of orders continues to grow, with the backlog of capital products also at record highs (see Chart 4).
Sustainable-product orders tend to be stronger, especially components of capital-capital goods, although some gains in nominal-dollar orders are due to price increases. Demand for the manufacturing sector remains strong and the tight labor market creates incentives for labor replacement. The epidemic could accelerate structural changes in the economy, affecting labor, housing, manufacturing and services.
However, the outlook remains uncertain. Sustainable upward pressure on prices continues as supply exceeds demand. Labor and material shortages continue to hamper production, while Russia’s aggression in Ukraine and renewed lockdowns in China further hamper the global supply chain. In addition, the Federal Reserve has begun an interest rate tightening cycle, increasing the likelihood of policy errors. Caution is inevitable.