Economics
Durable orders flat
Latest available: April 2008
Release date: June 25, 2008
Durable good new orders were unchanged April, in line with market expectations. However, the decline in April was doubled and is now registering a sizeable drop of 1%. Flat orders occurred despite aircraft orders rising in the month. For example, non-defence aircraft and parts were up 10.3% while defense aircraft and parts rose 14.9%. Other areas showing notable strength include the computer component, which saw a gain of 10.1% in the month.
The main offset came from the large motor vehicle and parts component, which dropped 3.3% in the month. Weakness was also evident in general machinery (-5.3%) and primary metals (-1.3%). Core, or non-defence capital goods ex aircraft, new orders also showed a decline, dropping 0.8%.
Today's report also showed overall shipments dropping a sizeable 1.1% in the month, although this followed a 1.8% rise in April. However, inventories continue to rise, up 0.4% in May after gains of 0.6% and 1% in April and March, respectively.
The drop in core capital goods is disappointing, although it only partially retraces the huge 3.1% surge in April. This earlier strength still points to growth in equipment and software returning to positive territory in the second quarter after a disappointing annualized -0.9% drop in the first quarter. However, ongoing declines in residential investment will keep any increase in overall second-quarter GDP minimal. An economy teetering on the brink of recession is expected to prevent the Fed from raising interest rates in the near-term despite escalating concerns about inflation pressures building in the system.
ISM manufacturing index moves higher
Latest available: May 2008
Release date: June 2, 2008
The ISM manufacturing index for May edged higher to a stronger-than-expected 49.6 from 48.6 in April, moving within a hair of the 50 mark. This is the third consecutive monthly gain after a three-year low in February. The May reading suggests that stronger exports are helping to alleviate persistent weakness in U.S. manufacturing activity.
The main positive developments were improvements in the production (51.2 from 49.1) and new orders (49.7 from 46.5) components. U.S. manufacturers continue to benefit from the weak greenback as the export orders component grew strongly (59.5 from 57.5). Inventories were little changed at 48 from 48.1 in April, consistent with slightly contracting levels. While improving marginally, the employment component remained weak at 45.5 (from 45.4), which indicates that factories are paring down payrolls. The prices paid index climbed to 87, the highest mark in four years, offering further confirmation that cost pressures are mounting. Order backlogs deteriorated to 46 from 51.5 in April.
While the ISM index is still suggesting declining activity in the U.S. manufacturing sector, its level within striking distance of the 50 mark is consistent with only modest weakness in this sector. As well, this level is associated with positive growth in the overall economy. Wednesday's non-manufacturing ISM will be monitored for confirmation of this strength.
This data are consistent with the Fed remaining on the sidelines near-term to assess the sustainability of the stimulative effect of the earlier actions by the central bank along with recent fiscal policy actions in the form of tax rebate cheques. The upward impact of the latter may be short-lived and largely boost activity late in the second quarter and through the third quarter. As the pace of activity slows towards the end of the year, the central bank may have to introduce further ease to limit the extent of any moderation in growth.
Empire State manufacturing index
Latest available: April 2008
Release date: April 15, 2008
The Empire State manufacturing index increased to 0.63 in April from -22.2 in March, trouncing market expectations calling for a -17 reading. The much better-than expected report may temper concerns about economics growth. However, the series is volatile and it remains to be seen whether the increase is sustained.
