February 25, 2021

Durable goods orders jumped 3.4% in January after having risen 1.2% in December and 1.3% in November.  Orders have risen for nine consecutive months.  The manufacturing sector is bouncing back and orders are now higher than they were prior to the recession.

Frequently much of the change in durables is in the transportation sector — airplanes, cars, and trucks.  In January transportation orders jumped 7.8% so excluding the volatile transportation sector durable goods orders rose 1.4% in January after rising 1.7% in December and 1.0% in November.  Orders are bouncing back quickly and are higher than the were prior to the recession.

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

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And also from the Purchasing Managers report the ratio of orders to inventories is the highest it has been in a decade.  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 having to deal with very evident supply constraints.

Second quarter GDP declined 31.4%.  But then, the fiscal stimulus package boosted third quarter growth to 33.4% and growth climbed by 4.1% in the fourth quarter.  We expect an 8.2% increase in GDP for the first quarter and  7.5% growth in 2021..

Stephen Slifer

NumberNomics

Charleston, SC