26 August 2020

Durables Manufacturing Continued to Recover in July Despite Fears

By Michael J. Bazdarich, PhD

The Census Bureau this morning released estimates of July activity in durable goods manufacturing. These estimates indicated that the sector continued to recover from the COVID shutdown in July. Total durables orders jumped a whopping 11.2% in July, with a large 1.1% upward revision to the June estimate.

True, the size of this decline was boosted by large “increases” in orders for aircraft and vehicles. Still, even net of transportation equipment, durables orders rose a nice 2.4% in July on top of a 0.4% revision to June. Those gains left July non-transportation durables just 1% below their pre-COVID February levels, after this metric had been down 10% from February levels through April.

An important metric within durables orders is orders for capital goods other than aircraft. These orders rose 1.9% in July on top of a 0.8% upward revision to June. This metric through July stood just 0.5% below February levels, after having been down 7.8% from February through April. As you can see in the chart (blue line), basic CAPEX orders have rebounded steadily and sharply over the last three months.

Exhibit 1: Orders for Nondefense Capital Goods
Explore Orders for Nondefense Capital Goods.
Source: Census Bureau. As of 31 Jul 20. Select the image to expand the view.

That 0.5% by which they fall short of February levels is within the margin for measurement error for this series, and generally, the July level looks on par with prevailing levels of the last 18 months. Six months ago, we were lamenting that CAPEX orders had failed to sustain any increases in late 2018 and 2019. Presently, we are relieved by the fact that they have recouped essentially all their COVID-related declines.

Now, the recovery in durables in general and in CAPEX in particular is not uniform across sectors. High-tech sectors are well above February activity levels, while low-tech are still noticeably below, but both have bounced nicely in recent months.

Meanwhile, we put quotation marks around “increases” with regard to aircraft orders, because the July levels were still substantially negative, just not so much as in June (green line in chart). Negative orders means that aircraft buyers are still cancelling past orders faster than they are completing new ones. Clearly, the troubles in aircraft reflect troubles in those service sectors suffering the ravages of social distancing and anti-COVID protocols (as well as the almost-forgotten 737 MAX issues).

As we’ve said repeatedly, ongoing strictures on travel, accommodations, entertainment, and food services will prevent the recovery from becoming complete across the economy. However, in the sectors not harshly affected by remaining shutdowns/fears, recovery has been dramatic and, in most cases, complete. For these latter sectors, more government stimulus isn’t needed. For the former, still-ravaged sectors, further government stimulus won’t help.

© Western Asset Management Company Ltd 2020. 当資料の著作権は、ウエスタン・アセット・マネジメント株式会社およびその関連会社(以下「ウエスタン・アセット」という)に帰属するものであり、ウエスタン・アセットの顧客、その投資コンサルタント及びその他の当社が意図した受取人のみを対象として作成されたものです。第三者への提供はお断りいたします。当資料の内容は、秘密情報及び専有情報としてお取り扱い下さい。無断で当資料のコピーを作成することや転載することを禁じます。
ウエスタン・アセット・マネジメント・カンパニーDTVM(Distribuidora de Títulos e Valores Mobiliários)リミターダ(ブラジル、サンパウロ拠点)はブラジル証券取引委員会(CVM)とブラジル中央銀行(Bacen)により認可、規制を受けます。ウエスタン・アセット・マネジメント・カンパニー・ピーティーワイ・リミテッド (ABN 41 117 767 923) (オーストラリア、メルボルン拠点)はオーストラリアの金融サービスライセンス303160を保有。ウエスタン・アセット・マネジメント・カンパニー・ピーティーイー・リミテッド(シンガポール拠点)は、キャピタル・マーケット・サービス(CMS)ライセンス(Co. Reg. No. 200007692R) を保有し、シンガポール通貨監督庁に監督されています。ウエスタン・アセット・マネジメント株式会社(日本拠点)は金融商品取引業者として登録、日本のFSAの規制を受けます。ウエスタン・アセット・マネジメント・カンパニー・リミテッド(英国、ロンドン拠点)は英金融行動監視機構(FCA)により認可、規制を受けます。当資料は英国および欧州経済領域(EEA)加盟国においては、FCAまたはMiFID IIに定義された「プロフェッショナルな顧客」のみを対象とした宣伝目的に使用されるものです。
業務の種類: 金融商品取引業者(投資運用業、投資助言・代理業、第二種金融商品取引業)
登録番号: 関東財務局長(金商)第427号
加入協会: 一般社団法人日本投資顧問業協会(会員番号 011-01319)