Economic Data and Growth

Durable goods orders beat expectations in May, rising 1.7% to a record $288.2 billion from $283.2 billion in April, according to U.S. Census Bureau data.

• Excluding transportation equipment, orders for new durable goods increased 0.6% last month, to $185.62 billion from $184.54 billion in April.

Year over year: New durable goods orders have increased solidly on a year-over-year basis—5.4%—since May 2022.

• They have dipped 0.3% over the past 12 months when excluding transportation equipment, however.

Core capital goods: Orders for core capital goods, a proxy for capital spending in the U.S. economy, increased 0.7% in May, to $73.96 billion from $73.46 billion. That’s an all-time high.

What’s up: The following categories posted strong sales in May:

• Non-defense aircraft and parts (up 32.5%)
• Motor vehicles and parts (up 2.2%)
• Electrical equipment and appliances (up 1.7%)
• Machinery (up 1.0%)
• Other durable goods (up 0.6%)
• Primary metals (up 0.5%)

The NAM’s take: “Durable goods orders were stronger than expected in May, with continuing resilience despite a challenging economic environment amid an uncertain outlook,” said Moutray.

Sales of existing homes inched up in May, according to the National Association of Realtors.

What’s going on: Existing home sales increased to 4.30 million units from 4.29 million units in April.

• Sales strengthened in the South and West but weakened in the Midwest and Northeast.
• The median sales price for existing homes was $396,100 in May, a decrease of 3.1% from a year ago.

By housing type: Single-family house sales edged down 0.3%, to 3.85 million units from April’s 3.86 million units.

• Meanwhile, sales of condominiums and co-ops increased 4.7%, to 450,000 units from 430,000 in April.

Unsold homes: The unsold inventory of existing homes on the market rose to 3.0 months from 2.9 in April but stayed near historic lows.

Overall: Home sales have declined 20.4% on a year-over-year basis, from 5.40 million units last May.

The NAM’s take: “The existing home market remained challenged by affordability and lack of inventory, although sales remained higher than the 4.00 million units in January,” said NAM Chief Economist Chad Moutray.
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Companies that provide services and goods to the oil and gas sector are repurposing some of their machinery for use in renewable energy technologies, according to The Wall Street Journal (subscription).

What’s going on: With investment in renewable energy sources expected to reach $1.74 trillion this year, oil-field-service firms including Baker Hughes are diversifying their portfolios to include investment in new energy segments.

• “Baker Hughes said orders in its new energy segment could reach $6 billion to $7 billion by 2030. At the midpoint, that represents about a fifth of the revenue that Wall Street expects it to generate that year.”
• In addition to maintaining its longstanding book of geothermal business, Baker Hughes is now “looking to do carbon capture and sequestration, which … requires geological knowledge” that the firm already has.

Making progress: “Orders in its new energy business were substantial enough to be noted on [the company’s] earnings calls. It booked more than $400 million of orders in the segment last year and said it is on track to exceed that amount this year.”

• Orders comprised carbon capture and sequestration equipment for a large Malaysia project.
• Some of the services can be a source of recurring revenue, as in the case of California direct air capture projects, which are required to monitor carbon dioxide levels underground for 100 years.

The fight to get inflation down to the Federal Reserve’s 2% target “has a long way to go,” Federal Reserve Chairman Jerome Powell said Wednesday, according to Reuters (subscription).

What’s going on: In testimony before the House Financial Services Committee, Powell said that “‘[i]nflation pressures continue to run high’” and “‘nearly all’ participants expect further rate increases will be appropriate by the end of the year.”

• Last week at its June meeting, the Fed kept the target federal funds rate unchanged at 5.00% to 5.25%, five times higher than it was in March 2022.
• Investors expect the central bank to raise rates next month.

Why it’s important: The Fed’s 10 consecutive interest-rate raises over the past 15 months have not had a large impact on the broader economy.

• “‘We have been seeing the effects of our policy tightening on demand in the most interest-rate-sensitive sectors of the economy,’” Powell said, citing housing as one example.
• “‘It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,’” he continued.

New residential construction in the U.S. soared to their highest levels in more than a year in May, according to data from the U.S. Census Bureau.

What’s going on: Construction starts rose 21.7% from April to May, to 1,631,000 units at the annual rate from 1,340,000 units, the largest increase in these numbers in more than a year.  

• Single-family homebuilding jumped 18.5% to 997,000 in May from 841,000 in April. It’s a level last seen in June 2022.
• Multifamily housing starts increased 27.1%, to a 14-month high. 

Permits: New housing permits, which are a proxy for future residential building, increased 5.2% from April to May.

• Single-family permits rose 4.8%, up for the fourth consecutive month, to a 10-month high
• Multifamily permits increased 5.9% in May.

Overall: Housing starts have risen 5.7% overall since May 2022, but starts of single-family homes have dipped 6.6% year-over-year, even in the face of solid gains in the most recent data.

• On a year-over-year basis, housing permits have declined 12.7% from May 2022, with permits for single-family homes falling even more, by 13.2%.

The NAM’s take: “Issues of affordability have impacted the new housing starts negatively over the past year, but Americans have become accustomed to the ‘new normal’ in mortgage rates,” said NAM Chief Economist Chad Moutray.

• “Would-be homebuyers are coming back into the market. With little inventory, the strong growth in housing starts [was] encouraging.”

Manufacturing production crept up 0.1% in May, following a gain of 0.9% in April, according to new data from the Federal Reserve.

Durable vs. nondurable: While durable goods production rose 0.3%, the nondurable goods sector declined 0.1%.

Economic context: Since April of last year, when manufacturing posted its highest production numbers since the end of 2018, output in the sector has declined 0.7% due to geopolitical tensions and a shakier economy.

What’s next? Production is forecasted to fall 0.6% in 2023 but expand 1.2% in 2024.

Mixed data: About half of the manufacturing sectors measured saw a decline in production, and half saw an increase. Those on the upswing included:

• Aerospace and miscellaneous transportation equipment (up 2.5%);
• Petroleum and coal products (up 1.7%);
• Electrical equipment, appliances and components (up 1.4%); and
• Nonmetallic mineral products (up 0.9%).

Producer prices dropped more than expected in May, and the annual producer-inflation increase was the smallest in almost two-and-a-half years, Reuters (subscription) reports.

What’s going on: “In the 12 months through May, the [Department of Labor’s Producer Price Index] climbed 1.1%. That was the smallest year-on-year rise since December 2020 and followed a 2.3% increase in April. The annual PPI rate is moderating as last year’s surge drops out of the calculation.”

• Producer prices for final demand goods fell 1.6% in May, owing largely to falling energy costs, after increasing an unrevised 0.2% in April.
• Economists surveyed by Reuters had predicted the PPI would dip 0.1% from April and rise 1.5% year-on-year.

The backdrop: The report comes a day after the Labor Department reported the smallest year-on-year increase in U.S. consumer prices in more than two years.

Why it’s important: Federal Reserve “officials are expected to keep rates unchanged at the end of their two-day meeting, for the first time since March 2022 when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years. … [The central bank] was seen leaving the door open to further rate increases given the economy’s resilience, particularly the labor market.”

The yearly rate of inflation slowed in May to less than half of what it was at its peak last year, but it’s still far higher than the Federal Reserve’s goal, according to The Wall Street Journal (subscription).

What’s going on: Consumer prices increased 4% in May from a year earlier, marking the 11th straight month of slowdowns.

• On a monthly basis, consumer prices rose 0.1% in May, following a 0.4% increase in April.
• Core consumer prices—which exclude food and energy and are considered a better predictor of future inflation—rose 5.3% year-over-year in May, owing partly to increasing rent costs.

The good: “The U.S. economy has maintained momentum this year, staving off predictions of recession. The job market remains robust, and consumers have boosted their spending, though one measure shows economic output is falling. A possible credit crunch following the March collapse of a few regional banks could crimp the economy.”

The not so good: “While inflation has cooled significantly, higher prices for many goods and services are weighing on household spending decisions.”
 
What’s coming: The Fed meets today and tomorrow to determine its next steps for interest rates, which it has raised aggressively in the past year—though it probably will not raise them again this week, according to NAM Chief Economist Chad Moutray.

• The Fed “is likely to make no changes to the federal funds rate this week, but with inflation remaining more stubborn than preferred, it could hike short-term rates by 25 basis points at either or both of its July 25–26 and Sept. 19–20 meetings before hitting the pause button on rate changes,” he said.

New orders for manufactured products rose for the second month in a row in April, according to the U.S. Census Bureau.

What’s going on: New orders inched up 0.4% in April, following a 0.6% gain in March.

• Durable goods orders increased 1.1%, owing mostly to a rise in defense aircraft and parts orders, which can be volatile from month to month.
• Excluding transportation equipment, factory orders dipped 0.2% in April, the third straight month of declines.

The big picture: Overall, orders for new manufactured goods have declined 2.6% since peaking a year ago.

• With factory orders (excluding transportation) down 4.3% over the past 10 months, manufacturing activity has contracted notably since last summer.

The good news: New orders for core capital goods (nondefense capital goods excluding aircraft) rose 1.3% in April after two straight months of declines.

• Core capital goods orders are considered a proxy for capital spending in the U.S. economy. These totaled $73.982 billion in April, just under the record $73.985 billion in December and signifying 2.5% year-over-year growth.

Factory shipments: Factory shipments decreased 0.4% in April, the third straight month of declines.

• Overall, total factory shipments have declined 2.9%—or 4.2% excluding transportation equipment—since peaking a year ago.
• However, core capital goods shipments rose 0.5% in April to $73.848 billion, just slightly under January’s record of $73.850 billion. Core capital goods shipments have risen 4.1% year-over-year.

Manufacturing shed 2,000 jobs in May, the second month of declines for the industry in the past quarter, according to the Bureau of Labor Statistics.

What’s going on: Manufacturing has added just 10,000 workers year to date, a significant slowdown from the 385,000 and 390,000 employees in 2021 and 2022, respectively.

• However … there were 12,984,000 manufacturing employees in May, just shy of the 12,988,000 in February, the highest number in more than 14 years.

Earnings are up: Average hourly wages of production and nonsupervisory employees in the sector increased 0.6%, from $26.03 in April to $26.19 in May.

• Manufacturing wages saw 4.9% growth in the past 12 months, which is an increase from the 4.7% year-over-year growth in April.

The bigger picture: Overall, U.S. employers added 339,000 new workers in May, an increase from April’s 294,000.

• While the U.S. economy has added 1,570,000 workers through the first five months of 2023—a strong pace—the U.S. unemployment rate increased to 3.7% in May from 3.4% in April.

​​​​​​​​​What’s up: The largest employment gains in manufacturing in May occurred in transportation equipment (up 10,500, including 6,800 for motor vehicles and related parts), electrical equipment, appliances and components (up 2,100), primary metals (up 2,000), chemicals (up 1,700), wood products (up 800) and miscellaneous nondurable goods (up 300).

What’s down: The biggest employment declines in the sector in May occurred in furniture and related products (down 4,000), machinery (down 2,400), fabricated metal products (down 2,300), printing and related support activities (down 2,000) and textile mills (down 2,000), among others.

The NAM says: In May “the labor market remained solid, with wages continuing to increase at healthy paces despite some deceleration from the 40-year highs seen last spring,” said NAM Chief Economist Chad Moutray.