US: Recent apparent strength may overstate the health of the factory sector – Wells Fargo

Data released in the US on Thursday included the first Q3 GDP estimate and the preliminary September Durable Goods Orders. Analysts at Wells Fargo point out that considering a big picture from all the data and what it means for manufacturing is that recent apparent strength in the data may overstate the health of the factory sector.

Key Quotes: 

“After accounting for revisions, durable goods orders actually came in a bit better than expected. The September increase was 0.4% versus the 0.6% expected by consensus, but last month got revised from -0.2% to +0.2%, so the new level is higher. On top of that, in this morning's separately reported third quarter GDP report, we learned that headline growth got a half a percentage point boost from equipment spending, which shot up at a 10.8% annualized rate in the quarter.

“The Federal Reserve raises rates aggressively and manufacturing ramps up? Our take is that this is more emblematic of new demand crumbling under higher rates and recession fears but high backlog is helping sustain shipments a bit longer.”

“Nondefense capital goods shipments fell 0.6% in September, but that was on the heels of an upward revision that lifted August's gain to 3.1% from the 1.8% increase initially reported. This upward revision helped support the large gain in Q3 equipment spending growth. But in also excluding aircraft, core capital goods shipments were downwardly revised and suggests that current equipment spending is losing momentum.”