UAW strike hits orders for durables

November 22, 2023

October durable goods orders declined 5.4%, a steeper-than-expected drop. The consensus expectation was -3.4%.

Transportation orders, -14.8%, were the main culprit behind the weak headline print due to a 50% drop in civilian aircraft orders and a 3.8% decline in motor vehicle and parts orders. The recent UAW strike sank both orders and production of vehicles as factory closures hit up and down the supply chain. Excluding the impact of transportation orders, durable goods orders were unchanged, which was near the consensus. UAW workers have ratified their contracts but it will take time to ramp up. Plants that were idled for weeks - some more than a month - take time to bring back on line. Competitors picked up some of the slack in dealer inventories, which could limit the rebound.

While Boeing aircraft orders totaled 123 planes in October, down from 224 in September, we anticipate a sharp upswing in orders for next month’s report. At the recently concluded Dubai Air Show held November 13-17, Boeing landed nearly 300 orders of new aircraft, more than 2.5 times October’s bookings.

Certain categories continue to show staying power. Orders for computers and electronics rose 0.3%, the third consecutive month of gain for this category. Generative AI demand will continue to support orders for this emergent field. Supply chain disruptions have evaporated, which has allowed some replenishing of inventories.

Fabricated metals orders rose 0.4%, the sixth consecutive month of gain. Fabricated metal products include products used in the construction of bridges, railway tracks and highways, which are all areas receiving an influx of federal funding. The boom in construction for manufacturing facilities including chip plants, thanks to the Inflation Reduction Act, has strengthened demand for products that range from automotive stamping to valve and pipe fittings.

Machinery orders and electrical equipment orders were little changed. Primary metal orders fell 0.5%.

Separately, defense orders surged 25% during the month, despite a continuing resolution that excluded funding for the war in Ukraine. Defense was a major driver of federal spending gains in the third quarter; work in the pipeline is expected to buoy government spending in the fourth quarter. The fate of future defense spending is uncertain given the ongoing budget battle on Capitol Hill.

Core orders, which represent capital goods orders excluding defense and aircraft, and are a proxy for future business spending, fell 0.1% in October. That follows a downward revision to September of -0.2%. That is weaker than we expected for the start of the quarter but was likely held down by the UAW strike.

Core shipments, which show up as actual business investment, showed no change. Weakness stemming from the UAW strike is expected to be recouped later in the quarter.