Factory Order Growth Slowed in September Amid Supply Chain Chaos

Growth of new orders for U.S.-made goods slowed in  September amid ongoing supply chain disruptions and shortages of factory inputs.

The Commerce Department said on Wednesday that factory orders increased 0.2 percent in September. That was in line with forecasts and slower than any month since April.

August was revised down to show orders rising one percent instead of the previously reported 1.2 percent.

But the September growth was driven by military spending. Excluding defense, new orders fell 0.5 percent for the month following a 1.2 percent increase in August.

The growth of durable goods orders was revised down from the 0.4 percent reported last week to 0.3 percent. Orders for durable consumer goods fell 3.1 percent, the second straight monthly decline. Orders for nondurable consumer goods, which are about five times larger than durable goods, rose 1.3 percent.

Orders for computers, electronic equipment, and motor vehicles all fell, likely due to shortages of inputs like computer chips. Orders were up for household appliances, construction machinery and materials, and industrial machinery.

Orders of nondefense capital goods excluding aircraft, a categorization considered a proxy for business investment, rose 0.8 percent, after rising 0.5 percent in August and 0.3 percent in July.

Evidence of the economic recovery can be seen in the comparisons to last year, before the vaccine rollout. Orders are up 17.6 percent compared with September of 2020. Excluding defense orders, the increase is 18 percent.

But much of that recovery came earlier in the year. September’s figure was the slowest growth in a year, although new orders fell on a monthly basis in April. Orders were up sharply in March and May, bookending that short contraction.

The economy overall slowed down by much more than expected in the third quarter as clogged supply chains, unexpectedly high inflation, and the Delta variant virus surge hindered economic activity. Last week, Ford reported that third-quarter sales were down 27.4 percent thanks to shortages of components, especially semiconductors.

The signals in the fourth quarter have been mixed so far.  Progress on the virus has plateaued in recent weeks, with the number of new infections no longer declining. Institute for Supply Management data on Monday indicated an October slowdown in manufacturing, with all industries reporting record-long lead times for raw materials and costs of inputs rising.

Shipments increased six-tenths of a percent after gaining one-tenth in August, a positive development suggesting some of the factory to warehouse trucking congestion has lifted.  Inventories at factories jumped eight-tenths, likely a sign that manufacturers are stocking up in anticipation of ongoing shortages.. Unfilled orders at factories rose 0.7 percent following August’s 0.9 percent increase.

Orders fell for mining and oil field machinery, the second monthly decline. This may be an indicator of a hesitancy to invest in fossil fuel energy production, despite high prices, due to Biden administration’s plans to raise taxes on producers and push the country toward renewable energy sources.

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