The Economy

U.S. Factory Orders Climb 0.8% in June

Despite supply chain issues, "business investment is showing no signs of slowing down or a lack of confidence in continuing strength in consumer de...
Matthew HellerJuly 27, 2021

New orders for U.S.-made goods increased in June, signaling that confidence in the economy remains strong despite supply chain issues.

The Commerce Department reported Tuesday that orders for manufactured goods rose 0.8% to $257.6 billion in June following a 3.2% gain in February. Demand for durable goods has grown in 13 of the last 14 months.

The report also showed that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans on equipment, increased 0.5% for a second straight month.  Economists polled by Reuters had expected a 0.7% jump in core capital goods orders.

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“Supply chain issues are holding back faster capacity adjustment, but business investment is showing no signs of slowing down or a lack of confidence in continuing strength in consumer demand,” said Will Compernolle, senior economist at FHN Financial in New York.

As Reuters reports, “Business investment on equipment has boomed during the pandemic, underpinning manufacturing, which accounts for 11.9% of the U.S. economy. Consumer spending shifted to goods from services, with millions of Americans cooped up at home. Record low interest rates and massive fiscal stimulus measures offered a further boost, causing supply constraints.”

“Though demand is reverting to services, with just under half of the population fully vaccinated against the coronavirus, spending on goods is likely to remain strong,” Reuters added.

Orders for durable goods were held back in June by weak orders for motor vehicles and parts, which slipped 0.3%. Motor vehicle, computer and electronics production has been hit by a global semiconductor chip shortage.

“Despite supply chain challenges the outlook remains bright,” Wells Fargo Securities economists Tim Quinlan and Sarah House said.

The government publishes its advance estimate of GDP growth for the second quarter on Thursday. According to a Reuters survey, GDP likely increased at an 8.5% annualized rate last quarter, up from the first quarter’s 6.4% pace.

Image by Janno Nivergall from Pixabay