It is increasingly clear that the manufacturing sector rebounded in September.
The Commerce Department reported on Thursday that the value of manufacturing orders rose 2.8 percent in September, the second month in a row of sequential increases in orders. On a month-to-month basis, orders have been up in six of the last seven months.
Compared with the first nine months of 2022, orders are up 0.7 percent. That’s not a very impressive gain, but it is a sharp contrast to the sluggishness seen earlier this year and the large outright contractions in February and July, when orders fell 1.7 percent and 2.1 percent. It’s also important to note that it represents an acceleration of the gains from the 0.5 percent year-to-date increases recorded in August and July.
If we do a year-over-year comparison, September’s orders were three percent higher, the second month in a row in which 2023 orders were higher than the year earlier level. Orders were below the year ago level in May, June, and July. In April, they were more or less flat. While one or two month’s data does not necessarily make a lasting trend, these year-over-year gains are suggestive of a return to growth.
Not Just War Machines
Importantly, the September monthly gain was not a product of War Keynesianism. Excluding defense, new orders were up an even stronger 3.2 percent. Defense aircraft and parts orders fell 15.2 percent following the August increase of 18.6 percent. Nonetheless, defense has been a big driver of gains year to date, with defense aircraft orders 15.4 percent and non-defense factory orders up just 0.4 percent.
Transportation orders led the increase, rising 12.7 percent compared with the prior month. Civilian aircraft orders are famously volatile, plunging and soaring on big fleet orders placed with Boeing. These were up 92 percent in September compared with August. A month earlier they had fallen 17.5 percent. Year-to-date, civilian aircraft orders are up 42.2 percent, which is obviously a significant rise representing a serious increase in economic activity.
Motor vehicle orders rose 0.6 percent for the month after climbing 0.5 percent from a month earlier. Year-to-date, orders for cars, trucks, and parts are up 3.9 percent.
Orders for durable goods were up 4.6 percent after contracting in the prior two months. That is a tick below the 4.7 percent reported in the preliminary estimate a week ago. Year-to-date durable goods orders are up 4.4 percent, an acceleration from the 4.2 percent pace of the prior month. Compared with September of last year, durable goods orders are up 7.7 percent.
Orders for nondefense capital goods excluding aircraft are thought of as a proxy for business investment. These rose 0.5 percent in September after climbing 0.9 percent in the prior month. While that might not seem like a terribly large gain, it is above the 0.3 percent long-term average going back to 1992. Even more importantly, it suggests a decisive break with the two-month trend of declining investment in June and July. Year-to-date orders in this category are up a respectable 1.9 percent. Compared with a year ago, orders are up 2.1 percent.
Importantly, a good portion of these gains are real. The producer price index for processed goods for intermediate demand excluding feeds and fuels is down 3.7 percent from a year ago and was up 0.5 percent in September. Final demand goods less food and fuel is up two percent from a year ago and rose just 0.1 percent from a month earlier.
The growth in September is also confirmed by the jobs data. The most recent Job Openings and Labor Turnover Survey (JOLTS) showed manufacturing vacancies rose to 627,000 at the end of September from 604,000 at the end of August and 544,000 at the end of July. The Labor Department’s establishment surveys showed manufacturers adding 11,000 workers to payrolls in August and 17,000 in September. Those figures represent an acceleration in hiring. In the first seven months of 2023, the average monthly gain was just four thousand.
The survey data from S&P Global released on Wednesday supports the idea that the improvement in the manufacturing sector continued into October.
“October PMI data signalled a stabilisation of US manufacturing conditions amid a renewed rise in new order inflows and firmer output growth,” S&P Global economist Siân Jones said in a statement. “Demand conditions reportedly showed signs of improvement as customer interest revived, but this was once again largely focused on the domestic market as new export orders fell at a quicker rate.”
Unfortunately, the competing purchasing manager’s survey from the Institute for Supply Management pointed in the other direction. It suggested that manufacturing slumped in October, largely reversing the September gains.
On Friday, we will get the jobs report for October. The level of job growth in manufacturing will be our first hard data look at the sector. The consensus is for a contraction in payrolls of 23,000. Both ISM and S&P Global suggested falling employment in the sector for October.
