U.S. Durable Goods Orders Surge in August
Factory sector improvement continued during August. Manufacturers’ orders for durable goods increased 1.8% (18.1% y/y) following a 0.5% July rise, revised from -0.1%. A 0.7% August increase had been expected in the Action Economics Forecast Survey.
A 5.5% surge (24.4% y/y) in transportation equipment orders accounted for last month’s overall increase. Orders for nondefense aircraft rose by roughly three-quarters after falling 36.3% in July. Motor vehicles & parts orders fell 3.1% (-5.1% y/y) after rising 5.3% in July. Excluding transportation, orders improved 0.2% in August (15.6% y/y) following a 0.8% July gain.
Nondefense capital goods orders excluding aircraft improved 0.5% during August (13.7% y/y) after gaining 0.3% in July, revised from no change. (…)
Durable goods shipments fell 0.5% (+9.4% y/y) during August after rising 2.0% in July, revised from 2.2%. Shipments of nondefense capital goods excluding aircraft improved 0.7% (11.7% y/y), the sixth straight month of firm increase. Shipments of transportation products overall fell 2.7% (-0.1% y/y) with fewer motor vehicle shipments, while shipments excluding transportation products rose 0.5% (13.7% y/y) after two months of 1.2% increase.
Unfilled orders for durable goods rose 1.0% in August (3.7% y/y) following a 0.5% July rise. Order backlogs excluding transportation improved 1.1% (15.1% y/y) and have been strengthening for more than a year, continuing to reflect shortages of key component products.
Inventories of durable goods rose 0.8% (7.1% y/y) in August, the same as in July. Excluding transportation, inventories rose 0.7% (8.2% y/y) after a 0.9% July rise, following inventory decumulation during all of last year.
Core orders are up 18.8% from pre-pandemic levels but shipments only 15.3%. Unfilled orders are trailing shipments by 6.3% at the end of August. From Markit’s flash manufacturing PMI for September:
The health of the manufacturing sector improved substantially in September, as highlighted by the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posting 60.5 at the end of the third quarter (…).
Supporting the overall upturn was a robust increase in new business. New orders were reportedly driven by strong demand conditions. At the same time, new export orders rose solidly and at the fastest pace for four months.
(…) the rate of selling price inflation accelerated to the sharpest since data collection began in May 2007 as firms passed higher costs on to their clients.
The WSJ:
The Labor Department’s measure of prices private companies pay for capital equipment was 4.6% higher in August than a year earlier—the largest gain since inflationary 1982. So while the amount of money companies are devoting toward capital spending is rising, the quantity of equipment buying isn’t going up quite so much.
(…) A surge in inflation because of supply-chain bottlenecks and other challenges related to the reopening of the economy has been larger and longer-lasting than anticipated, Mr. Powell said in his prepared remarks [for a Tuesday morning address to Congress]. “But they will abate, and as they do, inflation is expected to drop back toward” the Fed’s 2% goal, Mr. Powell said.
Mr. Powell acknowledged that there are risks that price pressures are higher than anticipated or more enduring. The Fed would raise interest rates “if sustained higher inflation were to become a serious concern,” he said. (…)
(…) Chinese manufacturers warn that strict measures to cut electricity use will slash output in economic powerhouses like Jiangsu, Zhejiang and Guangdong provinces — which together account for almost a third of the nation’s gross domestic product — and possibly drive up prices.
Local governments are ordering the power cuts as they try to avoid missing targets for reducing energy and emissions intensity, while some are facing an actual lack of electricity. (…)
Authorities are watching for disruption, with the People’s Daily, the official newspaper of the Chinese Communist Party, saying in an Sunday editorial that the shortages would force companies to raise the prices of goods for Chinese consumers. (…)
(…) News organisations and social media carried reports and posts saying the lack of power in the northeast had shut down traffic lights, residential elevators and 3G mobile phone coverage as well as triggering factory shutdowns. A utility in Jilin even warned power shortages could disrupt water supplies at any time, before apologising for causing alarm. (…)
Jilin is one of more than 10 provinces that have been forced to ration power as generators feel the heat of soaring coal prices that they can’t pass on to consumers. (…)
Goldman Sachs estimated that as much as 44% of China’s industrial activity has been affected by power shortages, potentially causing a 1-percentage point decline in annualised GDP growth in the third quarter, and a 2-percentage point drop from October to December. (…)
The China Electricity Council, which represents the country’s power suppliers, said in a note on Monday that coal-fired power companies were now “expanding their procurement channels at any cost” in order to guarantee winter heat and electricity supplies. (…)
Coal traders noted finding fresh import sources may be easier said than done. (…)
Nations are more reliant than ever on natural gas to heat homes and power industries amid efforts to quit coal and increase the use of cleaner energy sources. But there isn’t enough gas to fuel the post-pandemic recovery and refill depleted stocks before the cold months. Countries are trying to outbid one another for supplies as exporters such as Russia move to keep more natural gas home. The crunch will get a lot worse when temperatures drop.
The crisis in Europe presages trouble for the rest of the planet as the continent’s energy shortage has governments warning of blackouts and factories being forced to shut. (…)
Higher for longer!
The Dallas Fed’s recent manufacturing survey included a special question as Bespoke reports:
“When do you expect supply chains to return to normal?” This question was first asked back in June of this year. Back then 71.8% of respondents reported that they expected the issues to resolve themselves within 9 months. But three months later, the answers to the same question had a more pessimistic tone. The entire distribution shifted, meaning a larger share of businesses expect supply chain problems to linger around longer. In fact, this time around only 58.7% reported expecting things to get back to normal within 9 months. Meanwhile, those expecting these issues to last 10 to 12 months jumped 8.1 percentage points and nearly 5 percentage points more expect the issues to last for more than a year.
(Bespoke)
Sunac Leads Rebound in Chinese Property Stocks The real-estate developer played down a leaked request for government help, and the country’s central bank said it wants healthy development of the property market.
(…) After a meeting of its monetary-policy committee, the central bank said late Monday that it would “maintain the healthy development of the property market and safeguard the legitimate rights and interests of house buyers.” (…)
Investors interpreted the central bank’s message as a positive signal that authorities could fine-tune their property policies to maintain financial and social stability, said Bruce Pang, head of macro and strategy research at China Renaissance Securities. (…)
East Asia’s Economies Face Slowing Growth and Rising Inequality, World Bank Warns Most countries in East Asia and the Pacific face major setbacks in recovering from the coronavirus, the World Bank said, adding to concerns that the resurgent pandemic will widen the economic divide between the region and the West.
Overall, the economy of East Asia and the Pacific is on track to expand by 7.5% this year, according to forecasts released Tuesday by the World Bank Group, up from its April forecast of 7.4%. But that improvement is all China, now expected to grow 8.5%, up from 8.1%. The outlook for the rest of the region worsened, with the bank now forecasting growth of just 2.5% this year, down from 4.4% in April. (…)
Last week, the Manila-based Asia Development Bank cut its growth outlook for developing Asia to 7.1%, from 7.3% in April, in large part because Covid-19 outbreaks led to major lockdowns that slowed manufacturing activity in Southeast Asia, a regional export hub. The ADB now forecasts 3.1% growth this year for Southeast Asia, where countries have struggled to ramp up vaccinations, down from 4.4% previously. (…)
As of the end of August, less than one-third of the region’s population had been fully vaccinated, compared with 52% in the U.S. and 58% in the European Union, according to the ADB.
The World Bank predicts that most Asian countries will push vaccination rates up to 60% by the first half of 2022, which it says will allow for a fuller resumption of economic activity—though it won’t be enough to eliminate infections. (…)
The World Bank’s forecast for China takes no account of the developing energy crunch.
- Citi cuts China 2022 GDP forecast to 4.9% on Evergrande spillover Citi on Tuesday trimmed its China growth forecast for next year to 4.9% from 5.5%, citing expected spillover from the woes of embattled property giant Evergrande, and predicted policy makers would deliver more interest rate reductions.