Durable-product orders were strong in May

New orders for durable goods rose 0.7 percent in May, after gaining 0.4 percent in April, the 11th increase in the last 13 months. Total durable-product orders increased 10.0 percent from a year earlier. May profit puts total sustainable product order levels at $ 267.2 billion, the second highest on record (see first chart).

New orders of non-defense capital products other than aircraft, or capital goods, a proxy for business equipment investments, rose 0.5 percent in May after rising 0.3 percent in April. Orders rose 6.4 percent from a year earlier to নতুন 73.4 billion, a new record high (see first chart).

However, the effects of rapid price increases fall on orders for capital goods. In fact, after adjusting for inflation, the real new orders for non-defense capital products – one of the main indicators of AIER – were $ 41.7 billion in April, measured at 198 1982, a solid level but a record high by historical comparison (see first). Chart). Moreover, producer prices for capital instruments rose 0.7 percent in May, suggesting that in real terms, new orders for non-defense capital products could decline in May.

Almost every major category (six out of seven) in the Sustainable Products report showed a gain in May. Among the major individual segments, primary metals led 3.1 percent growth, followed by machine orders and transport equipment orders, which rose 1.1 percent and 0.8 percent, respectively. Computer and electronic products grew 0.5 percent and all other sustainable products added 0.2 percent. In the transportation equipment segment, motor vehicles and parts grew 0.5 percent, but non-defense aircraft fell 1.1 percent and defense aircraft rose 8.1 percent. Electrical equipment and appliances decreased by 0.9 percent (see second chart). Since a year ago, each major division shows a solid gain.

Despite labor, material shortages, and the difficulty of finding and retaining logistical problems, production of sustainable products is increasing. Outputs, such as industrial production for durable goods from the Federal Reserve and measured by the value of shipments from manufacturers of durable goods, were 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 at record highs (see Chart 4).

Sustainable-product orders are going to be strong, especially components of capital-goods, although some gains on nominal-dollar orders are due to price increases. Demand for the manufacturing sector remains strong and the tight labor market creates incentives for capital replacement for labor.

However, the outlook remains uncertain. Sustainable upward pressure on prices continues due to supply out of demand. Labor and equipment shortages continue to hamper production while disrupting global supply chains as a result of Russian aggression in Ukraine and periodic lockdowns in China. In addition, the Federal Reserve has begun a cycle of tightening interest rates, increasing the likelihood of policy errors. Caution is inevitable.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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