Fleet Management

Economic Watch: Durable Goods Decline, Services Sector Remains Strong

September 25, 2014

By Evan Lockridge

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Shipments and orders for long-lasting goods both declined in August, according to a new U.S. Commerce Department report.

Shipments of manufactured durable goods fell 1.5% from July following a 3.7% increase in July from June. A decline in transportation shipments led the drop, falling 5.1%.

New orders for manufactured durable goods fell sharply by 18.2% in August from the month before, following a surge in aircraft orders. This followed a 22.5% downwardly revised gain in July from June. A 42% drop in transportation orders led the falloff.

An overall decline of this amount was expected, according to a poll of economists.

Excluding the volatile transportation sector, new orders increased 0.7% in August. Excluding defense orders it posted a 19% gain.

“After an outsized rise in July, this morning's decline in the August report mostly offsets last month's gain,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “Excluding transportation, however, orders growth appears to be slightly stronger than expected in August, an encouraging sign that businesses may be slightly more confident as we head further into the third quarter."

However, she noted, in general, business spending continues to be uneven, “rendering the underlying trend in investment still indeterminable at this point.” Further stability in growth and consumer spending will continue to encourage businesses to expand and hire,” she said.

Meantime, a separate report that measures the health of the nation’s service sector fell slightly last month but remains in positive territory.

The Flash U.S. Services PMI Business Activity Index, from the financial services information provider Markit, posted 58.5 in September, down from 59.5 in August but still well above the neutral threshold.

PMI readings above 50 signal an improvement in business conditions, while readings below 50 indicate deterioration.

The index pointed to a robust expansion of overall business activity, though at the lowest level since May. However, on average over the third quarter of 2014, the index indicates the fastest service sector output expansion in the survey’s five-year history.

A separate services index, also posted by Markit for September, showed similar results.

“The U.S. economy is enjoying its strongest spell of growth since the financial crisis, according to the PMI surveys. Although the pace of expansion slowed to a four-month low in services in September, the rate remained buoyant and accompanies a similar boom seen in manufacturing,” said Chris Williamson, chief economist at Markit. “Taken together, the two PMI surveys have posted the highest quarterly average seen since data were first collected in 2009 in the three months to September.

He said the U.S. economy looks set to have expanded at an annualized pace of around 3.5% in the third quarter.

“Inflows of new work are in fact so strong that companies are unable to fulfill [service] orders with current workforce numbers,” said Williamson. “Backlogs of work showed the largest rise in survey history as a result, prompting companies across both sectors to boost payroll numbers to the greatest extent since June.”

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