Heavy manufacturing in the United States has taken on some unusually lumpy characteristics. Over the past year, it has advanced, to be sure, but in very noticeable fits and starts. It therefore raises the same question as the economy has been dealing with since 2007. We’ve seen growth periods like this before, low ceilings and all. This one so far isn’t different, so we have to wonder if it is sustainable.
The raw numbers sound appealing enough. Excluding transportation industries, new orders for durable goods rose 9.3% year-over-year (unadjusted) in July 2018. Shipments were up 10.1% from July 2017. The same for capital goods, both orders (9.8%) as well as shipments (9.4%).
It’s not that they are up or by how much. Rather, the issue is this unevenness and what it could mean, broken down into very tidy quarterly segments. The seasonally-adjusted series demonstrates what I mean:
Following Harvey and Irma, durable goods orders (as well as shipments) surged in the aftermath of so much destruction. For three months orders for durable goods surged by an annual rate of 13.7%, far and above anything since the 2012 slowdown.
Manufacturing activity predictably cooled off following those temporary effects. Over the next three months there was practically no growth, an annualized increase of just 1%.
The three months after those was the quarterly period when trade wars moved beyond talk and into anticipation. US firms expecting tariff and retaliatory restrictions ramped up production so as to deliver product before they might take effect. Durable goods orders jumped by a 16% annual rate.
Now, the last three months are back to cooling off. The manufacturing sector has slowed way down, in terms of durable goods orders just a 2.4% annual growth rate.
I don’t think this last time segment represents the effects of Eurodollar Event #4 so much as the downslope of this second artificial impulse. Over time, especially as monetary issues drag down the global economy again, there is a greater likelihood that the US economy (goods first) follows along like it did in 2015-16. I doubt we are at that point just yet.
These figures, along with yesterday’s PMI’s, suggest a slowdown but the reasons for it unlike these discrete and alternating durable goods time packets aren’t so neat. It may be that the return of “overseas turmoil”, to borrow a 2015 phrase, is taking a minor toll. It certainly is overseas where I would expect even greater problems before the US shows more definitive signs of the same cause.
This has all occurred against a backdrop of statistical uncertainty, too. With Reflation #3 significantly underperforming Reflation #2 in every way, economy to markets, it may be that there isn’t much growth at all right now either way. Like the original mirage of 2014, these numbers may just be statistical bias all over again. The manufacturing sector might not be rolling over because there was nothing for it to have rolled over from.
This might be the biggest if eventual contribution of another eurodollar event. The future disappearance of what may be the best parts.