June 27, 2022

Durable goods orders rose 0.7% in May after climbing 0.4% in April and 0.7% in March.  This is the seventh increase in orders in the past eight months.  In the past year durable goods orders have risen a steamy 10.6%.

Frequently much of the change in durables is in the transportation sector — airplanes, cars, and trucks.  In May transportation orders rose 0.8% after rising 0.7% in March and having fallen 0.3% in March.  Excluding the volatile transportation sector durable goods orders rose 0.7% in May, 0.2% in April and 1.1% in March.  Orders continue to climb steadily.  In the past year non-transportation orders have risen 8.1%.

Given the results of the orders component of the Purchasing Managers Index durable goods orders will continue to climb.

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And also from the Purchasing Managers report the ratio of orders to inventories fell in the early part of the year but remains very high.  Manufacturers need to step up the pace of production to satisfy demand.  Their problems will be finding an adequate supply of skilled labor, coping with shortages of materials arriving from suppliers, and complying with social distancing requirements on the factory floor.  Production is not being constrained by a shortage of demand. Orders are robust.   Instead, manufacturers are still having to deal with supply constraints.

We expect 2.0% GDP growth in 2022 despite an expected series of rate hikes this year which will raise the funds rate at yearend to a (still low) 4.0%.

Stephen Slifer

NumberNomics

Charleston, SC