Orders for durable goods skyrocketed in October, while shipments showed a nice increase as well.
The U.S. Commerce Department reported Thursday morning that orders increased a record 12.8%, erasing a 9.2% drop in September, while shipments rose 3.2%, offsetting most of the 6% decline in September.
This is some of the most positive news the nation’s beleaguered manufacturing sector has seen in quite a while, and it translates into positive news for trucking, because manufacturing is its biggest customer.
Newport Communications Senior Economist Jim Haughey says the news suggests that most - if not all - of the September shock to manufacturers was taken by the end of October. However he noted the larger services sector of the economy has not yet recovered as fully; it will remain a drag on economic growth for at least a few more months.
Haughey says just as important, durable goods inventories fell 0.4%, about half of the monthly declines from late spring through the summer.
“This puts the durable goods inventory/sales ratio at 1.61 compared to 1.59 in August and 1.5 last October," Haughey says. "This translates to three days of surplus inventory - maybe less if manufacturers are now willing to hold more inventory to avoid the huge costs of production shutdowns when transportation is disrupted.”
This is the first gain in orders for durable goods since May. More than half of the gain was for defense capital goods, mostly aircraft, munitions and satellites. Haughey predicts, “This level of orders clearly will not be sustained for long, but will provide a substantial boost to manufacturing through the winter.”
At the other end of the scale, the high-tech markets had the largest month-to-month declines in October. Semiconductor shipments fell 1.2%, communication equipment shipments dropped 2.1% and computer shipments rose only 0.3%. However, after allowing for rapidly falling prices in these markets, sales volume and freight are likely growing slightly.
This news about durable goods is most welcome in light the release of the “Beige Book” report Wednesday by the Federal Reserve, which found the U.S. economy was generally soft in October and the first half of this month and that in some regions of the country there was additional slowing.
However, the report could end up being a blessing in disguise. Fed policy makers will use the report when they meet about interest rates next month. This has led some analysts to speculate they may consider another cut in interest rates.