Decline is led by a 6.7% fall in Transportation Equipment, with most other categories registering gains.
By Manuel Gutierrez, Consulting Economist to NKBA
The big question for the American manufacturing sector is whether it will continue along the same path of growth since it hit bottom in May 2020, or whether it has stalled.
If it follows recent news from other sectors, which point to a weakening economy, the answer may not be encouraging.
New manufacturing Orders fell in April by 1.3%, to $246 billion for the month. In and of itself, this decline may not be very meaningful. In fact, Shipments from manufacturers rose by 0.65% to $249 billion. This might imply a continued ramp-up of the economy.
The decline in April orders is the first drop in a year, but as shown in Figure 1, Orders and Shipments had each been recovering nicely until that point, and had caught up to pre-pandemic levels earlier this year.
Transportation Equipment orders were off a huge 6.7% in April, dragging overall Orders down for the first time in a year.
As is nearly always the case, the overall decline in Orders is not felt across all product categories, but, in this case, in just two dominant ones.
Figure 2 shows New Orders(in red) andShipments (in black) for the six durable categories for which data is tracked by the Commerce Department. The percentages in parenthesis reflect the change in April shipments from the previous month.
Orders for two product categories, Transportation Equipment and Electronics & Appliances, each fell for the month, even though shipments for all of the others combined rose.
Transportation Equipment orders were down by 6.7%, while Electronics & Appliances dropped by 0.9%.
While new orders for the other categories grew in April, the sheer magnitude of Transportation Equipment, which accounts for 28% of all durable-goods orders, drove total orders for all products down for the month.
Figure 2 also shows that new orders lead shipments in the other categories. In fact, orders have exceeded shipments since at least last August. Rather than the caution expressed earlier, this suggests that the manufacturing sector could continue expanding over the next year or so, as long as manufacturers maintain production to fill those orders. Continued weakness in the transportation sector could upset this scenario.
In regard to the chart for Computers in the lower-left corner of Figure 2, where the shipments volume (black line) exceeds orders (red line), it is because the Commerce Department does not gather New Ordersdata for several lines within this general category. Data for the three sub-categories in the table below is not available:
A common assumption is that increases in manufacturing shipments correlate with an increase in employment within the sector. Such is not the case.
Manufacturers, like many other businesses, are continuously searching for ways to increase production efficiency to drive greater profits. One of the ways is using more advanced equipment to assist the work force or, in many cases, utilize equipment as a substitute for labor.
Figure 3 makes this abundantly clear. While U.S. manufacturers’ shipments of durable goods have increased by 35% over the last 11 years, total employment in the manufacturing sector has increased by only 7%.
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