Orders received by US-located manufacturers of core capital goods spiked by 14% YoY, of machinery by 15%, of IT equipment by 16%.

By Wolf Richter for WOLF STREET.

Orders received by manufacturers in the US of “core capital goods” (durable goods without defense and aircraft), a proxy for business investment, spiked by 1.6% in August from July, and by 14.1% year-over-year, to $88 billion, according to data from the Census Bureau today.

This category includes manufacturers of factory equipment, construction machinery, farm implements, computers and electronics, electrical equipment, appliances, heavy-duty trucks, railroad rolling stock, ships, and fabricated metal products. More on specific AI-investment-related categories in a moment.

These core capital goods orders are a sign that manufacturing is getting a massive boost from the AI infrastructure investment boom, with orders ranging from rebar to gas-turbine and diesel generators for data centers, and for everything else in between, amid reports of intractable shortages of all kinds, such as of turbine blades and vanes, that are tangling up supply chains.

“Orders” are an early indicator of future economic activity. It may take months before orders emerge from the backlog and become actual economic activity of production, sales, and investment.

Orders for all durable goods, including aircraft and defense, were unchanged in August from July, at $339 billion, seasonally adjusted, on a drop in transportation equipment orders.

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

In one month, an airline orders 30 Boeings, and aircraft orders spike by a huge amount, and the next month no airline orders 30 jets, and orders plunge off that spike, giving transportation equipment its extremely volatile nature.

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

These are hot year-over-year growth rates, and they’re largely driven by the AI infrastructure buildout boom.

AI infrastructure investment boom in durable goods:

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

Orders for machinery spiked by 1.1% month-to-month and by 15.1% year-over-year, to $45.5 billion. This has data center buildout written all over it.

Industries in Machinery Manufacturing (North American Industry Classification System, NAICS, code 333) includes manufacturers of:

• Engine, Turbine, and Power Transmission Equipment
• Ventilation, Heating, Air-Conditioning, and Commercial Refrigeration Equipment
• Machinery for Construction, Agriculture, and Mining
• Industrial Machinery
• Commercial and Service Industry Machinery
• Metalworking Machinery
• Other General-Purpose Machinery.

Orders for computer and electronic products were unchanged for the month at $31 billion, but spiked by 16.5% year-over-year. This includes orders for semiconductors at US-located semiconductor fabs.

Industries in computer and electronic products manufacturing (NAICS 334) include manufacturers of:

• Computer and Peripheral Equipment
• Semiconductor and Other Electronic Components
• Communications Equipment
• Audio and Video Equipment
• Navigational, Measuring, Electromedical, and Control Instruments
• Magnetic and Optical Media.

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

Industries in Electrical Equipment, Appliance, and Component Manufacturing (NAICS 335) include manufacturers of:

• Electrical Equipment
• Electric Lighting Equipment
• Other Electrical Equipment and Components
• Household Appliances

Orders for fabricated metal products declined by 0.6% in August from the record in July, and jumped by 8.6% year-over-year, to $45 billion.

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

These strong orders for core capital goods in August come on top of the hot S&P US Composite Flash PMI for September manufacturing and services that had inflation pressures written all over it, indicating that core capital goods orders for September will show more signs of strength and that inflation pressures will continue to percolate through the economy from business to business.

The hot S&P PMI report, and its “worry for the inflation outlook” had sent bond yields into an upward spiral (we discussed this here). Some excerpts from the S&P report:

“US business continues to boom, with output growing at the fastest rate for over five years in September…

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

“However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff. Backlogs of work are consequently rising sharply….

“While this accumulation of uncompleted orders bodes well for the further expansion of output and capacity in the coming months, it also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook.

“Firms’ input costs have meanwhile jumped in September at the steepest rate for four years, with fuel and transport costs spiking higher thanks to the rise in oil prices seen during the month, which will add further to the upward pressure on selling prices and inflation in the coming months.”

In case you missed it: $6.53 Diesel US Average, $8.25 in California, Worsens Already Hot Inflation, amid Record US Diesel Exports. Gasoline & Jet Fuel Prices also Spike

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