Monday, 16 of July of 2018

Economics. Explained.  

Category » Industrial Production

Durable Goods Orders

June 27, 2018

Durable goods orders declined 0.6% in May after having fallen 1.0% in April.  As always this is a very volatile series.  Over the course of the past year durable goods orders have risen a solid 9.2%.

In most  months transportation orders are the biggest category contributing to that month’s change  — both to the upside and downside.  That was certainly the case in recent months.  Transportation orders fell 6.1% in April and an additional 1.0% in May.   This means that non-transportation orders rose 1.9% in April but declined 0.3% in May.  These orders have been steadily rising for the past year (8.0%) and the pace in recent months is the fastest rate we have seen since December 2011 (red line).

Economists are also interested in capital goods orders so we can get some sort of a handle on the investment spending portion of GDP.  But even capital goods orders can get blown around from one month to the next if there is a huge defense order or if there is a big airline order.  Orders will rise very sharply one month, only to decline almost as sharply in the subsequent month.  Thus, the focus is typically on non-defense capital goods orders ex air.  These orders fell 0.2% in May after having risen 2.3% in April.  Over the course of the past year such orders have risen 6.1%.  These orders seem to be rising at a  respectable clip which bodes well for a faster pacer of investment spending and positive growth in productivity.

The backlog of orders rose 0.5% in May after having risen 0.6% in April.  If orders continue to climb consistently the backlog will climb as well which will eventually boost production.   We are not looking for a lot of strength from the manufacturing sector in 2018, but we do expect it to continue its gradual uptrend.

We think that the manufacturing sector is on a slow but steady uptrend.   Home prices are rising.  Consumer net worth is at a record high level.  Corporations are making near record profits.  They have a ton of cash to invest.  Interest rates remain relatively low.  And the rate of capacity utilization in the manufacturing sector suggests a need fairly soon to either re-furbish the assembly line and/or invest in new technology.  And with both corporate and consumer tax cuts now in the works the factory sector should get a boost in 2018.  The  underpinnings of the economy remain firm.

We expect investment spending to climb  7.0% in 2018.

Stephen Slifer


Charleston, SC

Industrial Production

June 15, 2018

Industrial production declined 0.1% in May after having climbed 0.9% in April and 0.5% in March.   Production took a breather in May after having risen sharply in other recent months.  During the past year industrial production has risen 3.5%.  A growth rate of that magnitude was last seen in late 2014.  So despite monthly wiggles, production continues to trend upwards.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) declined 0.7% in May after having risen 0.6% in April. Much of this decline is attributable to a drop in auto output and presumably reflects a somewhat earlier-than-normal end-of-model-year changeover.  Manufacturing ex autos fell just 0.2% in May.  During the past year  factory output has risen 1.7% (red line, right scale).  The factory sector is gathering momentum despite the May decline.

Mining (14%) output rose 1.8% in May after having climbed 1.0% in April.  Over the past year mining output has risen 12.6%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling jumped 3.9% in April after having gained 3.0% in April.     Over the course of the past year oil and gas well drilling has risen 13.8%.  However, in the past three months that figure has climbed to a 45.5% pace.

Utilities output rose 1.1% in May after having jumped 3.2% in April.  During the past year utility output has risen 4.0%.

Production of high tech equipment rose 0.2% in May after having jumped 1.8% in April.  Over the past year high tech has risen 6.2%.   Thus, the high tech sector sector appears to be on a roll. This is an indication that the long slide in nonresidential investment has come to an end which would, in turn, signal an upturn in productivity growth.

Capacity utilization in the manufacturing sector fell 0.6% in May to 75.3% from 75.9% in April.  It remains below the 77.4% that is generally regarded as effective peak capacity.  However, factory owners will soon have too have to spend more money on technology and re-furbishing or expanding their assembly lines to boost output.

Stephen Slifer


Charleston, SC

Commercial and Industrial Loans

April 27, 2018

Commercial and industrial loans, which are more commonly called “business loans”  jumped 9.4% in March after having risen at a 1.7% pace in February (the light green bars on the left scale).   The year-over-year growth rate has now quickened a bit to a 2.6% pace  (green line on the right scale).

Total loan growth has slowed for all types of bank lending — consumer , real estate, and commercial and industrial loans.  Given that the slowdown began right after the election it is possible that it is connected to the uncertain fate of Dodd-Frank legislation under Trump.  Right now total loans have grown 4.2% in the past year which is slightly faster than in other recent  months.

Stephen Slifer


Charleston, SC