By Guglielmo Mattioli
Long-lasting goods orders fell in February revealing how American manufacturing continues to suffer from the strong dollar, a lagging world economy and low oil prices.
New orders of long-lasting manufactured goods fell 2.8% in February, falling back to December 2015 values, according to a report issued Thursday by U.S. Department of Commerce.
The report underlines how American manufacturing is suffering and struggling to gain momentum. New orders have declined since October 2015 apart from a spike in January.
Exports of manufactured goods are hindered by a strong dollar and a slowing world economy, with China, one of the largest markets for U.S. durable goods, cutting imports. On the domestic front, oil companies are not investing in new equipment because of low oil prices and a mild winter didn’t drive the usual seasonal demand.
Orders of long-lasting goods are by nature volatile, and numbers could be easily skewed by the largest subcategories, especially transportation orders.
“Civilian aircraft was the great swing factor this time,” said Raymond Stone, Managing director at SMRA. Boeing new orders declined 27% in February after nearing a positive 54% the previous month. The company in February registered only 2 new orders compared with the 68 in January.
The volatility of aircraft orders not only skews the numbers but also determines the business model of Boeing suppliers. Fellfab is an American company that provides transportation and aviation interiors and has to deals with the irregular flow of orders. “We try to diversify product and client so that when airplanes slow down maybe trains are doing well,” said Jeffrey S. King, Program Manager at Fellfab’s Texas location.“Sometimes we have to suffer our way through the spikes and eventually things work out but some time we have to resize.”
Thursday’s report showed the moment is delicate across the entire long-lasting goods sector. Excluding transportation, durable goods declined in almost all the subcategories of the report. “This month negative performance is also due to a fall in office equipment and equipment in general which is not a good news,” said Hugh Johnson founder and CEO of Hugh Johnson Advisor.
Capital goods, which are a predictor of businesses’ spending and future investments, were down 9%. In particular energy companies, which heavily impact capital goods orders, are going through difficult times with oil prices still low, and a mild winter that didn’t support oil demand. “It’s going to take a little bit of time before energy companies’ confidence is restored,” said Johnson. In fact machinery new orders were down 2.6%
These numbers will affect first-quarter gross domestic product estimates, according to Johnson “a number of economists will revise GDP down to 1.8 from 2%” for this period.
Inventories keep on falling slowly but surely and registered a -0.1% in February, down six of the last seven months. “You want the inventory to rise along with shipments in an expanding economy, what we see here is a little problematic,” Stone said. “The domestic economy is not wonderful but it is sort of resilient and moving forward.”
The general consensus is that the economy is suffering and not expanding as it should be but it could be just a stall moment. “The underlying trend is flat at best,” said David Sloan, Senior Economist at 4Cast Ltd, “but I’m pretty optimistic that March is going to be a little stronger.”