U.S. Factory Orders Surge in January on Commercial Aircraft Demand

In a sign of renewed optimism in the manufacturing sector, U.S. factory orders rebounded in January, driven by a surge in commercial aircraft demand. According to data released by the U.S. Census Bureau, factory orders rose by 1.7% sequentially, matching the consensus and accelerating from December's -0.6% (revised from -0.9%). This uptick in orders comes as a welcome relief for manufacturers, who have been grappling with supply chain disruptions and workforce shortages.

The rebound in commercial aircraft orders can be attributed to a few specific factors. First, the demand for commercial aircraft has begun to tick up after months of market stagnation, setting the industry up for a possible return to growth in 2025. Second, Boeing's production recovered in January, leading to a significant increase in net orders. Lastly, the threat of tariffs on top trading partners like Canada, Mexico, and China could raise input prices for manufacturers and complicate supply chains, encouraging some manufacturers to pull forward purchases to beat potential price increases.

However, the sustainability of this trend is uncertain. While the rebound in orders is a positive sign, it is important to note that the recent strength in orders may be due to efforts to front-run tariff-related price increases. As such, the recent strength in orders may not last too far into 2025. Additionally, the ongoing labor crunch in the industry may continue to pose challenges to manufacturers' ability to meet demand.

Supply chain disruptions and workforce shortages have significantly impacted the production and delivery of commercial aircraft. According to a report by the Government Accountability Office (GAO), orders for new commercial aircraft have rebounded since they declined in 2020, but manufacturers have faced challenges in increasing production to meet demand. The two main manufacturers of commercial aircraft, boeing and Airbus, have struggled to produce their most popular models, the boeing 737 and Airbus A320, due to workforce and material shortages.

Manufacturers attributed these production challenges to workforce and material shortages. Fifteen of the 17 manufacturers GAO spoke to said they or their suppliers have had difficulty hiring enough skilled workers to enable them to satisfy the demand for their products. Six manufacturers said that difficulty hiring sufficient workers may be related to difficult or hazardous working conditions that some of these jobs entail, such as the use of toxic chemicals.

To address these workforce challenges, manufacturers have taken several steps. Some manufacturers reported offering financial incentives and working with local schools to build interest in aviation careers to address their workforce needs. Additionally, fifteen manufacturers said that they or their suppliers have had difficulty procuring materials needed to complete their orders. Material shortages included a broad range of items, such as engines and semiconductors as well as raw materials like aluminum. To address these material shortages, manufacturers said they have increased monitoring of suppliers and established additional sources for some supplies.

Airlines have also been affected by the availability of new aircraft and parts to support their operations. Seven of the eight airlines GAO spoke with reported delays of new aircraft they had expected to receive in 2023, and all eight airlines said they have had trouble obtaining a broad range of parts needed to maintain their fleets. Parts in short supply included small hardware like nuts and bolts as well as specialized items like cockpit windows and engine components.

In summary, the rebound in commercial aircraft orders in January is a positive sign for the manufacturing sector, but the sustainability of this trend remains uncertain. Supply chain disruptions and workforce shortages have led to production and delivery challenges for commercial aircraft manufacturers, who are taking steps to mitigate these challenges. Airlines have also been affected by the availability of new aircraft and parts, leading to delays and difficulties in maintaining their fleets. As the industry navigates these challenges, manufacturers and airlines must work together to ensure the availability of new aircraft and parts to support their operations.