Weekly Industry Crib Sheet: Equipment and Construction Boost U.S. GDP

August 5, 2013

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The U.S. economy saw unexpected growth in the second quarter. The Commerce Department announced Wednesday that the gross domestic product (GDP) grew at 1.7 percent, powered by investments in equipment, construction, and structures.

Business expenditures rose by 4.6 percent in the second quarter after dropping by the same amount in the previous quarter. Home construction grew 13.4 percent, in line with the previous quarter. Investment in equipment grew 4.1 percent, and investment in structures grew at a 6.8 percent after contracting sharply to start the year.

Federal spending fell 1.5 percent. While disappointing, it is much smaller than the first quarter’s 8.4 percent plunge. State and local governments increased spending for the first time in a year. But consumer spending, which makes up the bulk of the economy, grew at only 0.5 percent.

The announcement beat economists’ predictions of 1.0 percent growth for the second quarter. Still, many remain more cautious than optimistic. For starters, the Commerce Department revised down the first quarter’s estimated GDP growth from 1.8 percent to 1.1 percent. In addition, the numbers released today are considered preliminary, and will be revised twice more in the months ahead.

“Economic growth in the second quarter was better than predicted but largely negated by revision to the first quarter,” Joseph Trevisani, chief market strategist for WorldWideMarkets, Woodcliff Lake, N.J., told Reuters. “Third-quarter data already shows modest improvement in growth and job creation. That is the important arena for monetary policy and the dollar.”

The Commerce Department also released revised figures for 2012, reporting that the GDP grew at 2.8 percent, rather than the originally estimated 2.2 percent. While an improvement, it is still considered one of slowest recoveries since World War II.

ISM Manufacturing Index Hits New High

The July ISM Manufacturing Purchasing Managers’ Index soared 4.5 points to 55.4. Readings above 50 signal expansion.

Manufacturing moved into solid growth with new orders increasing by 6.4 points to 58.3 and production leaping 11.6 points to 65.0. Employment entered positive territory, rising 5.7 points to 54.4. This is particularly encouraging as many other employment indicators are showing recovery and a return to hiring.

The new reading is the highest the index has been since April 2011. It beats analysts’ predictions of 52.0.

“The ISM report was overwhelmingly positive and more evidence that the sector has improved this summer after weaknesses in the spring, with cautious optimism for the second half of the year,” said Chad Moutray, chief economist for the National Association of Manufacturers (NAM), in a statement.

U.S. Factory Orders up in June

New factory orders for manufactured goods in the U.S. rose 1.5 percent in June after a 3 percent surge in May, according to new data from the Commerce Department. Orders were driven by a strong demand for machinery and transportation, totaling a record $496.7 billion, but fell short of economist predictions.

Although economists polled by Reuters forecast new orders increasing at a higher rate, by 2.3 percent, overall national factory activity rose to a two-year high in June. Overall orders have increased for four out of the five previous months reported. Machinery demand rose 2.6 percent in June, with a 44 percent increase in oil and gas equipment, while demand for transportation products rose 12 percent. Driving the transportation category, orders in the civilian aircrafts rose 32 percent. Additionally, unfilled orders also increased 2.1 percent, which was the largest rise since 2007.

The index also indicated that orders for consumer goods dropped 0.7 percent, mostly on nondurable items. The surge in new orders is a sign that manufacturing is picking after sluggish spring activity that was weakened by low global demand and fiscal policies, Reuters reported.

Robot Sales Rise in North America

The North American robotics industry saw a large rise in sales for the first half of 2013, setting a new record, according to a report released by industry trade group the Robotic Industries Association (RIA).

North American robotics companies sold 10,854 robots from January to June 2013, totaling $679.3 million and representing a 1.9 percent increase in sales over the same period in 2012. Shipments totaled $715.1 million, accounting for 11,308 robots. The shipment figure represents a new record, 11 percent higher in units and 10.4 percent higher in dollars than the previous record for the same period in 2012. As of June 2013, RIA totaled 230,000 robots in use in U.S. factories, behind only Japan in robot use. The automotive industry has traditionally accounted for the dominant sector of robotics orders, but the first half of 2013 saw non-automotive industries increasing their orders. Manufacturers of semiconductors, life sciences, and food and consumer goods products all increased orders by two-digit percentage points .

“While the automotive industry is still the largest customer for robotics in North America, it is great to see such positive growth in other industries,” Jeff Burnstein, president of RIA, said in a statement. “North American robotics companies continue to diversify the industries they serve, which is a positive sign for the long term health of our industry.”

The increasing use of robotics in various sectors is also helping to secure jobs and make for a brighter future for U.S. manufacturing, as reported recently by IMT's sister publication IMT Career Journal.

Jobless Claims Hit New Low, Hiring Modest

The number of Americans filing for new jobless claims fell unexpectedly last week to a seasonally adjusted 326,000, according to the U.S. Labor Department. The figure, a 19,000 drop, is the lowest in more than five years. The four-week moving average, which smoothes out week-to-week volatility, fell 4,500 to 341,250.

The figures are far less positive than they seem at first glance. July is typically a volatile month for jobless claims, as automakers close to retool for the new model year, schedules for which vary from year to year making seasonal adjustments difficult.

A separate report from the Labor Department showed that the economy added 162,000 jobs in July. The figure pushed the unemployment rate down to 7.4 percent -- the lowest in more than 55 months. The New York Times noted that both the drop in jobless claims and the slip in unemployment rate could be the result of workers dropping out of the labor force, rather than because workers are finding jobs.

Manufacturers in particular added 6,000 net jobs in July. This is the first increase in four months. But, as Shopfloor.com noted last week, the 40,000 workers hired by manufacturers in the past 12 months represents only 1.8 percent of the 2.3 million nonfarm jobs created during that same period. Manufacturing had contributed 10.4 percent in 2010 and 2011.

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