The nation's manufacturing sector is gaining momentum, largely because of strengthening global growth and a healthy domestic housing market that support consumer spending. New orders as well as shipments of finished goods are on the rise, giving U.S. businesses incentive to step up their investments in expanding production operations. Expect a 3%-4% increase in business investment spending this year -- relatively modest but a nice recovery from two lackluster years that saw no new investing. Hurricanes Harvey, Irma and Maria's disruption of the Gulf Coast's industrial activity could temporarily make orders volatile. But durables manufacturing should stay on course for a strong finish to 2017. Looking further out, the Trump administration's push to overhaul the tax code and cut corporate rates, if successful, could bolster investment in 2018 and beyond, and return trillions of dollars in profits parked abroad to avoid U.S. taxes.
Oil and gas drilling is picking up as crude oil prices stabilize, boosting business investment by the energy sector. That's a boon for manufacturers of a wide variety of durable goods, like pipe, pumps and valves, and trucks. U.S. expertise in supplying the oil exploration-and-development industry is valued globally and, along with other exports, gets a lift from the dollar's softening value this year. (That weaker greenback makes American-made goods and services cheaper for foreigners.)
New orders for so-called core capital goods, which exclude defense items and aircraft, gained 0.9% in August, following a 1.1% July rise. Orders now are running 3.3% above levels in the comparable first eight months of 2016. Shipments similarly gained 0.7% after a 1.1% July increase, in a reflection of busy factory activity. New aircraft orders, which tend to be volatile, jumped sharply in August. Meanwhile, there were smaller but widespread increases in demand for machinery, computers, communications equipment and motor vehicles. Auto industry sales have softened over the past year, so a sustained pickup in auto manufacturing is unlikely. Inventories of finished goods increased moderately, a plus for third-quarter GDP growth and a sign that manufacturers are confident enough about demand to add to their product stockpiles.
Copyright 2017 The Kiplinger Washington Editors