Weak Durable Goods Report Hurt By Auto Supplier Fire
After the weak manufacturing component of industrial production, we are now seeing weakness in industrial production because of an auto supplier fire. On May 2nd, there was an explosion at an auto supplier called Meridian Magnesium Products of America in Eaton Rapids. This plant has annual production of 14,484 tons and is 208,000 square feet which is the size of 2 Target retail stores. Two people were injured and 150 were evacuated.
The good news is April’s reading was revised higher, which will help GDP growth estimates. The bad news is the May report missed the consensus which will bring GDP estimates down. April’s month over month new orders fell 1% instead of falling 1.7%. Excluding transportation orders were up 1.9% instead of 0.9%. Finally, core capital goods orders were up 2.3% month over month instead of up 1%.
The May report had across the board weakness as the new orders were down 0.6% month over month which met estimates. Excluding transportation orders were down 0.3% month instead of up 0.5%. Core capital goods orders were down 0.2% instead of up 0.2%. Because of the fire, vehicle orders were down 4% and vehicles shipments were down 4.4%. Last month’s report was hurt by the volatile aircraft orders which declined 30.3%. The May report was also hurt by aircraft orders which fell 7%. Even after you exclude these temporary issues with transportation goods, the orders were still down 0.3% which means this wasn’t a great report.
The primary metals and fabrications were down after there was a burst in buying because of the tariff announcements. You can say this is a temporary decline caused by tough month over month comparisons which won’t be faced again. Specifically, primary metals orders fell 0.4% after they increased 2.4% in April and 4.7% in March. Fabrications orders were down 1.2% after they were up 3.3% in April and 1.3% in March. These two components are over 20 % of total durable goods orders. This means the headline decline likely won’t continue in June.
