Factory Orders on the Rise

GM battery Assembly

Image courtesy of General Motors; photo by John F. Martin for GM

Factory Orders on the Rise
| published July 1, 2014 |

By Thursday Review staff

Mixed signals on the economy seem to be the norm these days. Oil and gas prices are on the rise amid worries about oil supply disruptions in the Middle East and growing demand from European countries affected by tensions in the Ukraine. Food prices have been rising steadily this year, mostly the result of a harsh winter affecting 40 states in the U.S., but also because California—the largest produce-growing state—is coping with a severe, prolonged drought. Winter put the brakes on consumer spending, which impacted scores of major retailers.

But the outlook for jobs continues to improve despite the periodic cycles of layoffs among retailers. April saw a surge in job growth, up to 288,000 total—a very good month, and in keeping with a positive pattern over the last seven months. Many economists and business analysts see the outlook for continued job growth as a powerful incentive for other areas of the economy to accelerate, and most believe that the employment numbers will continue to move upward.

Worrisome to some analysts: the recent stall in housing markets. Polar Vortex hampered not only real estate, but also much construction—residential and business—and spring was expected to finally bring relief from a stalled housing market. But sales of new and previously-owned homes slumped again in March and April, and many real estate analysts suggest this slump is due largely to tight credit. Home sellers and home buyers may agree on a price, but lenders are reluctant, and some buyers don’t have the cash for down payments.

All-in-all, a mixed bag of economic news since winter finally gave way to warm weather.

But today we learned that other factors look strong. The Institute for Supply Management, a group which maintains a respected and closely watched index of economic data, said that June factory output measured 55.3 (May recorded an index of 55.4). For those not familiar with ISM’s numbers, anything above 50.0 is considered upward growth and a sign that the economy is progressing in the right direction. The index measures factory orders and factory output.

Coupled with the announcements last month that all major auto-makers had seen better-than-expected sales in early spring (and that includes even General Motors), the factory data indicates that the economy is gaining steam toward a full recovery from the long recession. Preliminary figures show that auto sales may again show robust growth into the early summer months—this despite Wall Street’s earlier fears that U.S. car makers might have a bad year as a result of GM’s continuing problems with safety and recalls.

Retailers have had a rough seven months, many of the middle-tier stores struggling to get customers to return after a series of rough-ups last winter, including severe cold weather which kept shoppers at home and a wide aftershock from the Target data breach. Some discount stores have rebounded as consumers stick to bargain-hunting only, but JC Penney, Sears, Kohl’s and Kmart are facing difficult times.

Economists suggest that if the jobs scenario continues to improve, consumer confidence will rise as well, spurring some resurgence in the mid-tier retail sector. And even though the severe winter impacted dozens of areas of the economy—home and retail construction, transportation and shipping, factory output, real estate, and auto sales—the recent surge may be fueling a faster recovery as pent-up demand and backlogged orders begin to catch up. Most economists worry that oil prices may yet prove to be the wild card in a full recovery from the recession.

Related Thursday Review articles:

Is There A Future for the Middle Tier Retailer?; Thursday Review; June 30, 2014.

Oil Prices May Hamper Confidence; Thursday Review; June 24, 2014.

Is This Recession Over? Yes, No, Maybe?; Thursday Review; June 17, 2014.