New orders for U.S.-made goods increased more than expected in June, while business spending on equipment was solid, pointing to sustained strength in manufacturing even as spending is shifting away from goods to services.
The Commerce Department said on Tuesday that factory orders rose 1.5% in June after advancing 2.3% in May. Economists polled by Reuters had forecast factory orders increasing 1.0%.
Orders soared 18.4% on a year-on-year basis. Demand pivoted towards goods during the COVID-19 pandemic as millions of Americans were cooped up at home, boosting manufacturing, which accounts for 11.9% of the U.S. economy. But the surge in demand is straining the supply chain.
“We expect a solid growth path for the factory data through 2021, capped by capacity constraints and supply chain problems,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado.The Institute for Supply Management reported on Monday that manufacturing activity grew at a slower pace in July for the second straight month as raw material shortages persisted. The survey, however, suggested that supply chain bottlenecks were starting to ease.
Spending is rotating back to services as nearly half of the population has been fully vaccinated against COVID-19, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic.