Breitbart Business Digest: Factory Orders Zoom Ahead

Factory Orders Support the Manufacturing Rebound Thesis

Have we mentioned that U.S. manufacturing appears to be emerging from its sectoral recession?

The latest evidence that U.S. manufacturing has bottomed and may even be rebounding comes from the Commerce Department’s monthly report on factory orders. These jumped by an impressive 1.4 percent in August after slumping 2.1 percent in July. This was much better than the small 0.2 percent increase forecast by Wall Street.

The July slump now looks like an outlier. Factory orders have risen in five out of the last six months, including four straight months of gains prior to July. What’s more, the July slump was driven by 45.7 percent decline in the volatile category of civilian aircraft. Exclude transportation, and July’s figure was a gain of 0.9 percent (revised up on Wednesday from the preliminary estimate of 0.8 percent).

Excluding transportation, manufacturing orders have been up for four months straight. Apart from April, durable goods orders excluding transportation have been up every month since a month-to-month gain in December ended the contraction streak that had been running since June of 2022.

In this past month, total factory orders excluding transportation rose 1.4 percent. Durable goods orders minus transportation were up by a strong 0.4 percent for the month.

Factory orders also rose on a year-over-year basis for the first time since April, climbing 0.4 percent. Comparing the first eight months of this year to the first eight months of last year, orders are up 0.5 percent.

Of course, inflation throws a monkey wrench into analyzing how significant the gains are. On a year-over-year basis, the producer price index for processed goods for intermediate demand was down 4.3 percent in August, which suggests that deflation actually disguised an even bigger gain in the annual number. On a monthly basis, however, this rose 1.7 percent. But the category of processed goods includes fuels. Absent the rise in oil prices, it is likely that even on a monthly basis, the gains are real.

If we use the producer price index for durable consumer goods, we see that prices were up just 0.1 percent in August. That matches the 0.1 percent gain in durable goods orders for the month, suggesting stability rather than growth. On a year-over-year basis, however, durable goods orders are up 3.5 percent, easily outpacing the 2.1 percent annual gain in the producer price index.

War Keynesianism Still Going Strong—But Don’t Tell the Whole Story

We would be remiss not to mention the role of war machine manufacturing in our analysis of the August factory orders. Defense aircraft and parts orders rose 19.2 percent in August and are up 13 percent year-to-date. If we exclude defense from total factory orders, the rise comes down to a still respectable 0.8 percent.

But important categories of civilian orders are showing strength. Household appliance orders jumped 3.6 percent and are up 5.5 percent year to date. Orders for nondefense capital goods, excluding aircraft, rose 0.7 percent. This is an important proxy for business investment, and the climb is a sign that businesses are no longer expecting a downturn in the near future.

The comeback of manufacturing is still flying under the radar for most economists, but we expect it will soon become a focus of attention for analysts and the Federal Reserve.