In The News
Economic Watch: Durable Goods Fall as Overall Manufacturing Slows
A first look at new orders and shipments of manufactured durable goods in May shows declines, according to the U.S. Commerce Department.
New orders fell 1.8% from the month before, the third drop out of the last four months while April's performance was revised downward from a 0.5% drop to a 1.5% decline.
New transportation orders led the decline, falling 6.4%, also down three out of the last four months. Excluding transportation, new orders increased 0.5%, but are down 1.6% on an annual basis.
On the upside the closely watched new orders for nondefense capital goods excluding aircraft, increased 0.4% last month, a sign of future business investment and the second increase out of the past three months.
Shipments of manufactured durable goods in May fell 0.1% from April, the fourth decline in the last five months. It was pushed lower by transportation shipments, down 0.9%, also the fourth drop in the last five months.
"As the Federal Reserve noted in the latest Federal Open Market Committee statement, business investment remains 'soft.' This morning's disappointing durables report further reinforces the committee's lackluster assessment," said Lindsey Piegza, chief economist for the investment banking firm Stifel. "Despite modest improvement in economic conditions from the general malaise of the first quarter, businesses remain hesitant to invest to any marked degree in equipment, structures or employees."
She said lingering themes of tax uncertainty, rising healthcare costs and regulation continue to deter business development and growth, limiting a much needed component of the investment cycle.
"With a minimal 0.4% increase, business investment in May took a small step in the right direction, however, the trend in spending still remains deeply negative," Piegza said. "In other words, there remains quite a ways to go before we can be confident fixed investment is on the upswing."
Meantime, a separate report on the nation's wider manufacturing sector shows this month it has dropped to its lowest level since October 2013, according to the financial information services provider Markit.
Its Flash U.S. Manufacturing Purchasing Managers' Index registered 53.4 in June, down from 54 in May. The PMI was still above the neutral 50 threshold, but slightly below its average since the recovery began in late-2009.
Softer output growth was a principal factor behind the decline in the headline index during June. In contrast, new business growth picked up slightly from May's 16-month low and job creation accelerated to its strongest since November 2014.
The latest expansion of production volumes was the weakest recorded by the survey since January 2014. Some manufacturers cited greater efforts to fulfill orders from inventories in June, as highlighted by the first reduction in stocks of finished goods since December 2014, according to the report. Moreover, there were reports that softer output growth reflected a degree of caution about the business outlook, as well as concerns about the impact of the strong dollar on competitiveness. Although new orders from abroad stabilized in June, this followed declines in export sales during each of the previous two months.
"While the survey data points to the economy rebounding in the second quarter, the weak PMI number for June raises the possibility that we are seeing a loss of momentum heading into the third quarter," said Chris Williamson, chief economist at Markit. "The slowdown is being led by deteriorating export performance, which many producers in turn linked to a loss of competitiveness caused by the stronger dollar. Although stabilizing in June after declining in April and May, export orders have not shown any growth since February.
He said the survey results will add to further worries about the damaging impact of the strong dollar, and encourage the Federal Reserve to be cautious in terms of the timing the first interest rate hike.