U.S. factory orders in January slipped for the second straight month, and the brutal winter proved a drag on manufacturing as shipments of goods also fell. The latest Department of Commerce report indicates new orders for manufactured goods fell 0.7 percent in first month of the year, while unfilled orders and manufacturers’ inventories both reached their highest levels since 1992. However, a separate report by the closely watched Institute for Supply Management indicated that manufacturing may be recovering and accelerating again.
The January slowdown measured by the federal government was not as big as the revised 2 percent drop in December, but economists polled by Reuters had expected a smaller 0.4 percent decrease in factory demand. Still, many economists believe, and as the ISM February PMI of 53.2 suggests, manufacturing and the economy are coming out of the soft patch early in the year caused by tough winter weather conditions. According to an AP report, orders for core capital goods, a proxy for business investment, rose 1.5 percent in January, recovering from a 1.6 percent December drop.
January goods orders were pulled down by demand drops in both commercial aircraft (-20.2 percent) and ships (-26.4 percent), as well as by fewer orders for automobiles and parts (-0.9 percent). Without the transportation sector, new orders for goods in January actually rose slightly, by 0.2 percent. Demand for durables fell by 1 percent in January, but represented a recovery from December, when durable good orders tumbled 5.3 percent.
The majority of goods categories fell in the month, as businesses continued to work off the inventories they piled up over the last few months of 2013, according to Reuters. Orders for computers plummeted 46 percent, but the computer and electronics category was otherwise saved by a surge in demand for defense search and navigation equipment (59 percent) as well as by growth in defense communications equipment (10.1 percent). Transportation (-0.9 percent); electrical equipment, appliances, and components (-2.2 percent); furniture (-3.6 percent); primary metals (-1.2 percent); and machinery (-0.7 percent) all saw declines.
However, there were signs of improved business spending. Order jumps in mining oilfield, and gas field machinery (26.1 percent); turbines, generators, and power transmission equipment (19.9 percent); and metalworking machinery (5.5 percent) indicated that manufacturers were making major capital investments. Business for fabricated metal products rose on a 7.4 percent growth in new bookings.
Cold weather had a hampering impact on January activity and logistics, as shipments of durables fell 0.3 percent, including a 2.9 percent decline in machinery shipments. As machinery makers produced less and sent fewer goods out the door, unfilled orders drew up 1.8 percent. More finished cars and light trucks/utility vehicles sat at plants, with respective 8 percent and 4.7 percent jumps. Inventories among all manufacturers increased 0.2 percent, with durable inventories rising 0.3 percent.
The nearly 2 point jump in the ISM PMI suggests manufacturers are ready to dust off the ice and snow. The February new orders index accelerated by 3.3 points, from 51.2 to 54.5, a sign that there was a built-up in demand heading into last month that should reverse the big 6.6 percent drop in production activity by next month’s reading, as spring approaches and the weather softens. Of no surprise, supplier deliveries worsened by 4.2 percentage points in February, and inventories (+8.5 points) and backlogs (+4 points) piled up.
Manufacturing employment grew at the same pace last month as in January, at 52.3, while price growth weakened slightly, with the prices index going from 60.5 to 60.
Businesses Thaw Hiring Freeze
U.S. employers broke a two-month hiring slump in February by adding 175,000 jobs, which beat the 150,000 payroll increase that economists predicted. Hiring at the beginning of the year also wasn’t as weak as initially reported by the Department of Labor, as it upwardly revised January’s jobs figure from 113,000 to 129,000. It also adjusted December’s employment gains by 9,000 to 84,000 positions.
Economists noted that companies and workers are coming out of the winter doldrums that were deepened by unusually bad weather, which kept workers home and discouraged job-seekers. Analysts expect an upcoming return to normality in the nation’s job market, but their mood seems to have turned slightly from an earlier confidence in January. “The acceleration in job growth in February suggests, that, despite this recent softening, the U.S. is continuing to make slow, fitful progress,” said Joseph Lake of the Economist Intelligence Unit, according to Forbes.
“The job market is limping faster,” Patrick O’Keefe, director of economic research for accounting and consulting firm Cohn Reznick, told USA Today. O’Keefe blamed the slow housing recovery and tepid consumer spending as the reasons behind lackluster growth, the paper reported.
Peter Cappelli of the Wharton School at University of Pennsylvania, saw worrying signs in some long-term employment indicators, telling Forbes, “You can see the unemployment rate is going down not because people are getting jobs but because people are giving up. You can see the number of long-term unemployed has risen, which is a real problem. And the labor force-to-population ratio continues to drop.”
The national unemployment rate has floated up 0.1 point to 6.7 percent and remains above the 6.5 percent threshold that the Federal Reserve uses for directing changes in monetary policy. The Fed considers unemployment rates above 6.5 percent as “elevated.”
The number of people who have been out of work longer than a half-year rose by 203,000 in February to 3.8 million, or 37 percent of all unemployed. The labor participation rate remained at 63 percent last month after hitting an all-time low in December and is down 0.5 percent compared to a year ago. There were more than 2 million additional people who have quit working or given up looking for jobs than in February 2013.
Most of the job gains last month came from professional and business service companies, adding 79,000 positions. Education and health services added 33,000 jobs, leisure and hospitality 25,000, and government 13,000. Retail trade shed 4,100 positions and transportation and warehousing 3,600.
Construction added 15,000 workers, while manufacturing added only 6,000.
Trade Gap Deepens in January
The monthly U.S. trade gap cracked a bit wider in January to $39.1 billion from $39 billion in December, a 0.3 percent change. Imports picked up the pace against exports, as the U.S. exported $1.1 billion more in products compared with December but brought in $1.7 billion more in goods. Month-to-month exports of goods and services grew to $192.5 billion while imports expanded to $231.6 billion.
January’s trade deficit was worse than expected, as economists predicted the gap would shrink to $37.3 billion. The deficit deepened in December on a big drop in exports, and the spread in January is helping to offset last November’s major gains in the trade gap. Still, the inequality in U.S. goods and services trade with foreign partners has narrowed by more than $3 billion compared with the same period a year ago, and in 2013 the country closed the gap by nearly $60 billion.
“Basically we’re not being able to export things because the global economy is slower,” Steven Ricchiuto, chief economist at Mizuho Securities, commented to Wall Street Journal, about recent weakened overseas shipments. The WSJ report also noted that slow income growth and thus weaker consumer spending are resulting in less imports. Weather may have impacted household spending, as well.
Demand for foreign cars dipped by $1.4 billion and imported consumer products $1 billion in the first month of 2014. Americans sought out significantly less cell phones and household items manufactured overseas. At the same time, demand for American cars in other countries fell, though exports of consumer goods rose.
However, robust increases in imports of industrial supplies and materials ($3.7 billion) as well as capital goods ($0.3 billion) are harbingers of U.S. businesses ramping up their spending and investment. Among capital goods exports, growth in deliveries of computer accessories, medicinal equipment, industrial machinery, and civilian aircraft components helped to more than offset declines in industrial engines, semiconductors, and railway transportation equipment.
The U.S. trade imbalance with China ballooned in January on a big drop in exports to the world’s second-largest economy, reaching $27.8 billion, a 12 percent jump. But the trade gap with Mexico was at its narrowest point since 2009, at $2.8 billion, on a large decrease in imports from December. Fewer exports to Canada contributed to a widening of the trade shortfall with the northern neighbor, but the commerce gaps with Europe and Japan shrunk.
Top photo credit: City of Riverside