The latest economic indicator of Recovery Summer shows that manufacturing, which had been a bright spot in the weak recovery, looks like it’s heading solidly in the wrong direction. New orders for durable goods dropped 1% in June, and excluding transportation (autos), fell 0.6%. This follows a 0.8% overall drop in May and gives two straight months of bad news on inventory:
New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 0.7 percent. Transportation equipment, down four of the last five months, had the largest decrease, $1.1 billion or 2.4 percent to $45.9 billion. This was due to nondefense aircraft and parts, which decreased $1.8 billion.
Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease. Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion.
Despite the decrease in orders, inventories grew:
Inventories of manufactured durable goods in June, up six consecutive months, increased $2.8 billion or 0.9 percent to $308.2 billion. This followed a 1.1 percent May increase. Transportation equipment, up six consecutive months, had the largest increase, $0.8 billion or 1.1 percent to $80.0 billion.
That indicates that sales are off, which we have seen from other economic indicators already. If inventories keep growing, orders will keep slowing until consumers start buying product again. This will almost certainly lead to job losses in manufacturing, or at the least stunt job growth in that sector.
It’s not just retail consumers who have cut spending, either:
Nondefense new orders for capital goods in June decreased $1.1 billion or 1.6 percent to $64.1 billion. Shipments increased $0.6 billion or 1.0 percent to $63.2 billion. Unfilled orders increased $0.9 billion or 0.2 percent to $486.6 billion. Inventories increased $1.3 billion or 1.0 percent to $128.1 billion. Defense new orders for capital goods in June decreased $0.7 billion or 6.8 percent to $9.6 billion. Shipments decreased $0.1 billion or 1.5 percent to $9.8 billion. Unfilled orders decreased $0.2 billion or 0.1 percent to $139.6 billion. Inventories increased slightly or 0.1 percent to $17.9 billion.
In other words, June was another bad month, and a bad start to Recovery Summer. This decline over May and June calls into question what we’ll see when the Commerce Department releases the Q2 GDP number on Friday, when it’s due. Will we still be in a growth position, with a relatively stronger April (which had a 2.9% increase month-on-month in durable orders) rescuing the last two months? Or will we dip back into negative territory, signaling a double dip recession? Right now I’d guess that the number won’t be any better than +1.5%, and may be well below that.
New orders for long-lasting U.S. manufactured goods unexpectedly fell for a second straight month in June, posting their largest decline since August, according to a government report on Wednesday that was further evidence economic growth cooled in the second quarter.
The Commerce Department said durable goods orders fell 1.0 percent after a revised 0.8 percent drop in May.
Analysts polled by Reuters had forecast orders increasing 1.0 percent in June from May’s previously reported 0.6 percent fall. Durable goods orders had been expected to rise based on the fact that Boeing Co (BA.N) received 49 orders for civilian aircraft in June compared to only five in May.
Maybe Reuters should find another analyst besides Joe Biden.