The annual trend in nondefense capital goods new orders is moving higher again after falling to a 12-month low in December. New orders are currently 5.5 percent ahead of this time last year, and the year-over-year comparison is improving.
The December-to-January seasonal decline of 2.7 percent was the mildest in 20 years. Our analysis of internal and external factors suggests that positive momentum is building, and we will likely see increased activity in new orders over the next two to three quarters.
The stimulative monetary policy is good news for our 2013 outlook. Current policy is compensating for ineffectual fiscal leadership as evidenced by the upward trek of the stockmarket through at least mid-March. The positive trend in the stock market is a good sign for readers as we move into the second half of the year.
Positive employment trends
Employment trends are providing optimism regarding the rest of this year. Businesses are hiring and that bodes well for economic growth in the months ahead. The U.S. added 614,000 jobs in February, a larger-than-average 0.43 percent jump from January. There were improvements in manufacturing, mining, construction, and professional & business service employment. We expect employment conditions will improve through early 2014 before total employment levels off at around 144.0 million through the remainder of the year.
As for industry trends, Defense capital goods new orders turned downward early in the year after strong gains late last year. new orders will continue to mildly contract early this year as the government grapples with the recently enacted budget cuts known as sequestration, but the decline will not last. Expect a leveling off in order activity around midyear.
The U.S. House in March approved a $518.1 billion spending bill for the Pentagon as part of a $982 billion continuing resolution (CR) for the federal government. The CR includes a full 2013 Pentagon appropriations bill that is $2 billion greater than was originally requested. The bill will allow all branches of the military to resume more normal operations than previously expected under sequestration. The majority of the “savings” come from spending reductions on spare parts and the Iraq conflict. All the hype around sequestration and a government shutdown was just that—hype—and the defense industry is not falling off a cliff.
Annual Metalworking Machinery new orders regained momentum after the minor stall late last year. The improvement is consistent with the general improvement in Nondefense Capital Goods new orders.
Metalworking Machinery production is expanding at an annual rate of 7.5 percent. Machine Tools production, a component of Metalworking Machinery that includes metal cutting and forming machine tools, is expanding at a more rapid pace. Annual production in this industry is 11.0 percent ahead of last year. The good news coming from North American Light Vehicle production is expected to help boost demand for new machine tools.
Overall, the future looks good through the short and medium terms. There will be an interruption in the U.S. expansion in 2014, but the overall outlook calls for business leaders to invest in their businesses in substantial ways.
Drive efficiency, invest in equipment, and especially train a workforce that can both understand your business and embrace new technologies. There are technological, business intelligence and generational gaps that will need to be bridged, and all of that takes time. Start now.