The Economy

U.S. Factory Orders Decline 0.1% in June

“The underlying trend of demand for durable goods remains at very elevated levels and should support sustained production into 2022."
Matthew HellerAugust 25, 2021

New orders for U.S.-made goods fell slightly in July but were generally strong outside the transportation sector despite supply constraints.

The Commerce Department reported Wednesday that orders for manufactured goods dipped 0.1% to $257.2 billion last month following a 0.8% gain in June. Demand for durable goods has grown in 13 of the last 15 months.

Orders were pulled down by a 2.2% decline in orders for transportation equipment, which followed a 1.4% increase in June.

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Core capital goods orders, a closely watched proxy for business spending plans on equipment that excludes aircraft, were flat following a 1.0% increase in June. Economists had expected a 0.5% decline in overall orders last month.

“While the manufacturing sector continues to grapple with supply-chain issues, workforce challenges and soaring prices, it is hard not to look at the latest durable-goods data — nondefense aircraft aside — as anything but positive news,” said Chad Moutray, chief economist for the National Association of Manufacturers. “The trend line remains very positive, including new records.”

As The Wall Street Journal reports, “Low business and retail inventories have translated to increased demand for manufacturers, but supply-chain issues continue to constrain production and delay some shipments. The Delta variant of Covid-19, which started its surge earlier this summer, presents another threat.”

In the transportation sector, orders were hit by a 48.9% decline between June and July in new orders for nondefense aircraft and parts, a category that is often volatile. Elsewhere, bookings rose for primary metals, machinery and computers.

Orders for motor vehicles and parts rose 5.8% in July after climbing 1.8% in June though the industry is still struggling with a semiconductor shortage.

Before the July slowdown, business spending on equipment notched four straight quarters of double-digit growth, helping to power the economy’s recovery from the COVID-19 pandemic recession.

The slowdown “likely reflected supply chain bottlenecks as well as the rotation of spending back to services from goods,” according to Reuters.

“The underlying trend of demand for durable goods remains at very elevated levels and should support sustained production into 2022 as supply issues are eventually resolved,” Citibank economists said.