WHOOSH and Go orders at US ‘basic capital goods’ manufacturers, fueled by AI infrastructure boom

Orders received by US manufacturers of basic capital goods increased by 14% year-on-year, of machinery by 15%, of computer equipment by 16%.

By Wolf Richter for WOLF STREET.

Orders received by U.S. manufacturers of “basic capital goods” (durable goods excluding defenses and aircraft), a gauge of business investment, jumped 1.6% in August from July and 14.1% year over year, to $88 billion, Census Bureau data showed today.

This category includes manufacturers of factory equipment, construction machinery, agricultural implements, computers and electronics, electrical equipment, household appliances, heavy trucks, railway rolling stock, ships, and fabricated metal products. More on specific categories related to AI investing in a moment.

These orders for core capital goods are a sign that the manufacturing industry is getting a huge boost from the AI ​​infrastructure investment boom, with orders ranging from rebar to gas turbines and diesel generators for data centers, and everything in between, amid reports of intractable shortages of all kinds, like those of blades and turbine blades, tangled up supply chains.

“Orders” are an early indicator of future economic activity. It can take months before orders come out of the order book and become real economic activity of production, sales and investment.

Orders for all durable goodsincluding aviation and defense, remained unchanged in August from July, at $339 billion, seasonally adjusted, due to a drop in orders for transportation equipment.

But year-over-year, orders for durable goods jumped 8.5% (blue line in the chart below).

In one month, an airline orders 30 Boeings, and plane orders increase dramatically, and the next month, no airline orders 30 jets, and orders fall, giving the transportation equipment its extremely volatile nature.

The three-month average, which smooths out some of the monthly scribbles, rose 0.5% in August from July and jumped 9.3% year-over-year (red line).

These are high year-over-year growth rates, and they are largely driven by the boom in AI infrastructure construction.

AI infrastructure investment boom in durable goods:

Here are the orders received by some of the industries that are “core capital goods” manufacturers and involved in the AI ​​infrastructure investment boom.

Machine controls grew 1.1% month-over-month and 15.1% year-over-year, to $45.5 billion. Data center construction is written all over it.

Machinery manufacturing industries (North American Industry Classification System, NAICS, code 333) include manufacturers of:

• Engines, turbines and power transmission equipment
• Commercial ventilation, heating, air conditioning and refrigeration equipment
• Machinery for construction, agriculture and mining
• Industrial machines
• Commercial and service machines
• Metalworking machines
• Other general purpose machines.

Orders for IT and electronic products remained unchanged for the month at $31 billion, but increased 16.5% year-over-year. This includes semiconductor orders from semiconductor manufacturing plants located in the United States.

The computer and electronic product manufacturing industries (NAICS 334) include manufacturers of:

• Computer equipment and peripherals
• Semiconductors and other electronic components
• Communications equipment
• Audio and video equipment
• Navigation, measuring, electromedical and control instruments
• Magnetic and optical media.

Orders for electrical equipment, components and devices, which includes some electrical equipment needed in data centers, jumped 1.1% month-over-month and 7.6% year-over-year to $19 billion.

The electrical equipment, appliance and component manufacturing industries (NAICS 335) include manufacturers of:

• Electrical equipment
• Electric lighting equipment
• Other electrical equipment and components
• Household appliances

Orders for worked metal products fell 0.6% in August from July’s record and jumped 8.6% year-over-year, to $45 billion.

Industries in the Metal Product Manufacturing (NAICS 332) category use processes such as forging, stamping, bending, forming, machining, welding, and assembling metals into intermediate or finished products (other than machinery, computers, and electronic devices, and metal furniture.).

These strong August core capital goods orders come on top of September’s very hot US S&P Composite Manufacturing and Services PMI, which featured inflationary pressures throughout, indicating that core capital goods orders for September will show more signs of strength and that inflationary pressures will continue to seep into the economy from company to company.

The hot S&P PMI report and its “concerns about the inflation outlook” sent bond yields into an upward spiral (we discussed it here). Some extracts from the S&P report:

“Business in the United States continues to boom, with production growing at the fastest pace in more than five years in September…

“Business is now clearly booming, both in manufacturing and services.

“However, this growth is accompanied by some of the most serious supply chain bottlenecks seen in the nearly two decades of investigation, excluding the pandemic, with companies also reporting increasing difficulties in finding suitable staff. Work backlogs are therefore rising sharply….

“While this buildup of uncompleted orders bodes well for further expansion of production and capacity in the coming months, it also indicates that businesses are developing more pricing power, and is therefore a concern for the inflation outlook.

“At the same time, business input costs jumped in September at the highest rate in four years, as fuel and transport costs soared on the back of higher oil prices seen during the month, further adding to upward pressure on sales prices and inflation in the months to come.”

In case you missed it: $6.53 of diesel on average in the United States, $8.25 in California, aggravates already hot inflation, in a context of record diesel exports in the United States. Gasoline and jet fuel prices also rise

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