Orders of durable goods are 6.7% higher than last December, reflecting inability to fill high demand due to supply-chain disruptions, while shipments are just 1.6% higher.
By Manuel Gutierrez, Consulting Economist to NKBA
Although manufacturer durable goods Orders and Shipments were positive in May, the percentage increase in new orders was six times higher than shipments. May saw a total of $253 billion in new orders, up 2.3% from April. At the same time, shipments rose by an almost negligible 0.4% to $248 billion.
Compared to last year, the gains are substantial for orders as well as shipments (Figure 1). At this time last year, the nation was going through the worst of the pandemic, with orders more than $100 billion lower than today. Not quite as dramatic, shipments were around $80 billion lower.
Both orders and shipments have increased since the beginning of the year, reflecting the rosier outlook for the manufacturing sector. However, while orders are 6.7% higher than what they were last December, shipments are only 1.6% higher.
Orders of durable goods are four times higher than shipments this year, reflecting an inability to meet robust demand owing to supply-chain disruptions.
This implies that manufacturers cannot keep up with the increase in demand, that is, new orders. This could be the result of the supply-chain disruptions manufacturers are facing due to shortages of workers and raw materials.
These are the main concerns of manufacturers responding to the Institute of Supply Management’s monthly survey, also known as the PMI survey.
Product categories that make up the “durables goods” group do not all move in the same direction, which is expected. While shipments of all durable goods combined rose by just 0.4% in May, two of its components actually fell (Figure 2). Transportation Equipmentwas down 0.4% and Computers & Electronics fell by 0.3%. Even though the other four components rose, the importance of Transportation, which makes up 28% of the total, drove the overall total down.
The situation for orders of durable goods is different. Overall, as mentioned earlier, they rose by 2.3%, but this is mainly the result of Transportation Equipment increasing by 7.6% for the month.
Along with autos and trucks, transportation includes aircrafts and ships, which make this a very important category from a dollar contribution perspective.
Manufacturing orders and shipments have increased sharply over the last decade. Durable goods shipments are 35% higher today than in 2010, but employment in the manufacturing sector is only 7% higher (Figure 3). Increases in manufacturing production and sales have not translated into equivalent increases in employment, reflecting greater efficiencies as production ramps up.
One final observation: While durable shipments in May were the highest ever, employment in the industry is still over half a million below pre-pandemic levels seen at the end of 2019.
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