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US Manufacturing Demonstrates Resilience Amidst Volatility in August
September 27, 2023
US durable goods activity took a break from a volatile series of readings in August with its first reading between -0.5% and 0.5% since September 2022. Durable goods new orders were up just 0.2% MoM after a massive drop of -5.6% MoM in July (revised down from -5.2% MoM). This is the fifth increase in the last sixth months, and over the course of that time period, the total value of new orders has increased 5.1%. That trend alone suggests that the US manufacturing sector remains resilient.
Of course, this headline figure includes volatile data points so it is important to look at the details. Durable goods new orders (excluding transportation) were up 0.4% MoM, but orders (excluding defense) were down -0.7% MoM. This comes down to volatility in the transport segment: nondefense aircraft orders fell -15.9% MoM while defense aircraft orders jumped 19.2% MoM. The sharp decline in the former is not necessarily something to worry about. Nondefense aircraft orders have been falling consistently since surging up to $37.5 billion in June which is the second highest on record only after an even sharper spike in July 2014 to $77.4 billion.
Beyond the volatility, most segments gained in September. Machinery new orders were up 0.5% MoM, electronics products were up 0.3% MoM, and electrical equipment and components jumped 1.1% MoM. All are were positive components of the “core” segment of durable goods new orders, nondefense capital goods (excluding aircraft). In September, this segment saw a health gain of 0.9% MoM, reversing two straight months of losses. The incline saw the annual increase go from 0.8% YoY to 2.1% YoY, and the current quarterly gain in Q3 improved from a negative reading to up 0.5% MoM which is supportive of optimistic GDP growth estimates (see GDPNow forecast).
The US manufacturing sector once again refuses to capitulate and will go into the final quarter of the year with positive momentum. This is positive momentum that analysts continue to be surprised by. Today’s release of the core segment topped the consensus estimate of no growth by a considerable margin. The unexpected expansion is a sign that manufacturers can operate under tighter financial conditions which give credence to the Fed’s insistence on “higher for longer.” It also means that the US remains on track to avoid a recession and glide into a soft landing.