Durable goods new orders bounced back in February, but economists are still hesitant to declare a definite recovery in the manufacturing sector.
Seasonally adjusted new orders rebounded 1.4%, following a revised 6.9% decrease in January, according to Tuesday’s Census Bureau report.
Boeing’s aircraft orders, the main culprit behind January’s decline, increased. While this drove the headline up, manufacturing remains vulnerable.
“Outside of aircraft orders, the categories of goods for which orders went up in January went down in February and vice versa,” says Thomas Simons, senior u.s. economist at Jefferies, a global investment bank. “Looking at these past few months, it’s indicative of generally soft demand for capital investment and the high-interest rate environment that we’re in.”
Excluding the transportation sector, shipments and new orders were relatively flat, with marginal increases of 0.0% and 0.5%, respectively.
Companies and key decision-makers may expect the Fed to lower interest rates later this year, halting their urgency for new orders, Simons noted.
The Fed has been signaling three anticipated rate cuts by the end of 2024, aiming to bring the federal funds rate down to 4.6%. Despite early signs of inflation easing, the Fed remains cautious, insisting on more robust data before committing to these cuts. Their next crucial meeting is in April.
“Even if the Fed starts to ease policy in June, I think you won’t see manufacturing start to pick up until mid to late summer.” Says Shannon Greim, Chief Economist at Wells Fargo.
Last week, Wells Fargo issued a report highlighting the emergence of high-tech manufacturing as a key driver in the nonresidential construction sector. Greim and other economists note this rapidly expanding realm, coupled with the surge in construction activity, has sparked discussions of its potential impact on the broader U.S. economy.
“We’ll see key components like semiconductors and computers really start to pick up, so that’s a bright spot we’re paying attention to.,” says Greim.
In the meantime, companies are still dealing with supply chain woes in the wake of material and labor shortages.
According to a recent Deloitte and the Manufacturing Institute study, the manufacturing skills gap in the U.S. could result in 2.1 million unfilled jobs by 2030.
Brian Hopper is a general account manager at a global real estate services firm that oversees manufacturing real estate in Charlotte, North Carolina. He and his clients experience these setbacks daily.
“Labor has also been a huge issue. Just getting qualified people to show up to do the work is an issue we deal with every single day. There’s also a lot of competition out in the market so if someone is paying slightly more or their benefits are slightly better you see a lot of folks willing to make a move. There’s not as much company loyalty.,” Says Hopper.
“These supply chain issues have a compounding effect.”
