This morning, I reported on the new U.S. labor productivity statistics just published by the government, which revealed that this crucial measure of the economy’s efficiency continues to grow at historically low rates. Now let’s look at the second major set of full-year, 2015 statistics issued this morning that illuminate the state of the American recovery. They cover factory orders and, they’re considerably worse.
This new orders data shows how much new business is being won by manufacturers in various sectors, and the main category of company economic observers look at is “non-defense capital goods excluding aircraft.” Purchases from these firms, often referred to as “core capital spending” (“core capex” for short), get special attention because they’re a good proxy for the nation’s level of business investment – excluding the volatile (but big!) aircraft, and defense spending (which of course isn’t driven by free market spending). Such investment in turn can be a powerful engine of overall long-term growth.
Unfortunately, capital spending currently is helping to lead the economy’s slowdown. Core capex fell by 1.44 percent from November to December, its biggest monthly drop since winter-affected January, 2015 (2.21 percent). Ignoring such weather-distorted data, you need to go back to June, 2012 (1.89 percent) to see a bigger sequential plunge.
Overall levels of core capex peaked in July, 2014, and on a monthly basis have fallen since then by 8.15 percent. In other words, the economy has suffered a technical factory orders recession (two consecutive quarters or more of cumulative decline) for nearly a year and a half. Moreover, between full-year 2014 and full-year 2015, these orders sank by 3.90 percent – the worst performance since recessionary 2008-09 (-18.50 percent). And since that sharp downturn began, in December, 2007, monthly core capex is up only 1.22 percent.
These figures give some credence to the notion – which I disputed recently – that American manufacturers are mainly being troubled today by a weakening of U.S. demand for industrial goods. I noted that continually rising imports indicate that demand for foreign-produced manufacturers keeps growing. Tomorrow we’ll get the first full-year 2015 trade data, which will shed more light on the relative importance of these factors. For now, though, it’s clear that weak factory orders are one more obstacle domestic manufacturing – and the larger economy – will need to overcome to speed up the recovery and place it on more solid, production-heavy, ground.