Weekly Economic Trends and Indicators

The Headline:

The Census Bureau reported last week that manufacturers’ new orders increased 0.4% in April. This was the fourth increase in the last five months, coming on the heels of a 0.6% increase in March. However, this number was considerably lower than many analysts expected. Furthermore, excluding defense related orders, there was actually a 0.4% decrease for the month.

The Details:

The headline number obscures the vastly different performance of different segments of the manufacturing sector. Among the industries with significant changes in new orders in April were primary metals (down 0.6%), electrical equipment (down 1.7%), machinery (up 1.0% mainly driven by oil and gas) and transportation (up 3.7% mainly driven by defense). As a whole, durable goods manufacturing new orders were up 1.1% and nondurables were down 0.1%.

The Context:

Concerns about manufacturing have increased in recent weeks as the economy has finally started to show some signs of slowing in response to the Federal Reserve’s increases in interest rates. Manufacturing is particularly sensitive to interest rate changes. In addition to new orders, we can look to recent figures on industrial production for signs as to the direction of the industry. The chart below from the Federal Reserve shows industrial production for total manufacturing as well as three components (primary metals, fabricated metal product and machinery). Of these three sectors, machinery has performed the best, but it has been trending down for the last few months. All manufacturing sectors rebounded from the COVID-19 recession in a similar way, but in the last year (since the rate increases started) their performances have differed.

There is little doubt now that the interest rate increases are slowing the economy, but until inflation responds, the Fed will find it difficult to pause the rate hikes. The longer the rate hikes increase, the greater the risk to manufacturing and the broader economy. Achieving the fabled “soft landing” without a recession becomes less likely if manufacturing slows further.

What to watch this week: CPI inflation on Tuesday (6/13) and Federal Reserve interest rate decision Wednesday (6/14)

Next week: Inflation update

Chart source: Federal Reserve Economic Database (fred.stlouisfed.org)