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Manufacturers are on the mend and hopeful about a return to normalcy next year if vaccines for the coronavirus prove effective.
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The numbers: Orders for long-lasting goods such as computers and military weapons rose again in October and business investment increased for the sixth straight month, but it’s unclear if manufacturers can escape the fallout ahead from the record coronavirus outbreak.
Durable-goods orders advanced 1.3% in October, the government said Wednesday. Economists polled by MarketWatch had forecast a 0.5% increase.
One potentially big caveat: The surge in orders was driven by Pentagon spending. If defense is excluded, orders rose a more modest 0.2%.
Read: Raging pandemic singes economy. Darker days ahead?
What happened: Orders increased for computers, networking equipment, fabricated-metal parts, electrical equipment and military-related hardware.
Demand for computers and related products has snapped back during the pandemic with so many people working from home and needing upgraded equipment.
Orders fell 3.2% for new cars and trucks and they declined again for commercial planes. Boeing BA has been a drag on orders the entire year because airlines aren’t ordering new planes.
Orders rose 1.3% excluding the volatile transportation industry.
A key measure of business investment known as core capital orders, meanwhile, rose by 0.7% in October.
Although it’s the smallest increase since the economy reopened last May, investment has risen 6.2% over the past year, marking the fastest 12-month gain in a year and a half.
The acceleration in investment is a particularly welcome sign. A pair of surveys earlier this week showed businesses are increasingly optimistic about a return to normalcy next year on the assumption that vaccines become widespread.
Read: U.S. businesses grow faster despite coronavirus spike
A number of pharmaceutical companies including Pfizer PFE, -0.84% and Moderna MRNA, +5.55% have announced their vaccines are effective. The vaccines could start to become available as early as next month.
The end of a bitterly contested 2020 presidential election has also given businesses more certainty about what to expect from Washington next year. A closely divided Congress is likely to result in few major changes in tax and regulatory policy.
Big picture: Businesses, especially manufacturers, are more optimistic than consumers and are planning ahead to next year. Orders for durable goods — products that last a long time — typically rise when the economy is strong or improving.
Read: Fed’s Bullard sees ‘light’ at the end of the coronavirus tunnel
The big hurdle is the record rise in coronavirus cases. If demand slumps again either at home or abroad, companies will have to scale back, at least temporarily.
In a separate report Wednesday, the government said new jobless claims rose for the second week in a row to a five-week high, pointing to an increase in layoffs due the more government restrictions on restaurants and other businesses that rely on large crowds of customers.
Read: Jobless claims jump to 5-week high amid record coronavirus wave
Manufacturers are less likely to be affected because they have more control over their work environments, but they can’t escape the broader effects of prolonged restrictions on the U.S. and other countries that are key U.S. export markets.
What they are saying? “The October data are positive and are indicative of building momentum,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “However, the manufacturing sector remains exposed to surging virus cases that could disrupt supply chains, weigh on demand and slow the pace of rebound going forward.”
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open lower in Wednesday trades. The Dow topped 30,000 on Tuesday for the first time ever.
