As the third quarter of 2024 unfolds, the landscape of the U.S. economy presents a complex picture, with a noticeable divergence between capital goods shipments and imports, and the Purchasing Managers' Index (PMI). The strength in capital goods, particularly within the computer-related sectors and civil aviation, stands at odds with the relatively weak overall PMI figures. This situation raises critical questions about the underlying dynamics of the American economy and its future trajectory.

At the core of this divergence is a striking observation: while capital goods shipments and imports are surging, the PMI, which reflects broader manufacturing activity, remains lackluster. Experts suggest that the robust performance in capital goods is primarily driven by the computer sector and civil aircraft, indicating sector-specific growth rather than a comprehensive upturn in manufacturing.

The explanation behind the robust growth in capital goods shipments and imports can largely be traced back to advancements in artificial intelligence (AI) and the resurgence of civil aviation demand. Predictions for 2024 indicate that investment in the AI sector may lead to substantial growth, fueled by technological breakthroughs and expanding market needs. For instance, a recent Bloomberg report projects that four major American tech companies—namely Microsoft, Amazon, Google, and Meta—are expected to increase capital expenditure by 49% in 2024, reaching an impressive $209.3 billion, followed by a continued growth of 23% in 2025.

This uptick in the technology sector is further bolstered by a revival in the aviation market, which has been significantly driven by a resurgence in both leisure and business travel. Following the tumultuous years of the pandemic, passenger volumes have rebounded significantly. For instance, data from the Transportation Security Administration (TSA) reveals that many days in 2024 witnessed record-high numbers of individuals screened at airports, reflecting the renewed consumer confidence in air travel. This surge in demand naturally translates into a corresponding increase in aircraft orders; however, the situation isn't without complications.

Despite the increased demand for civil aircraft, Boeing, one of the leading manufacturers, faces several challenges that hinder its production capabilities. Issues such as labor shortages, supply chain disruptions, and intensified regulatory oversight have all contributed to a notable decline in delivery volumes. In 2024, Boeing delivered only 348 planes, significantly lower than expected, which in turn reinforced the necessity for increased imports of civil aircraft. This conundrum also highlights the volatility in the domestic manufacturing sector, as the anticipated growth in aircraft imports adds layers of complexity to the market dynamics.

Turning to the broader manufacturing landscape, the discrepancy with the PMI can be attributed to muted performance in other industrial sectors. While capital goods like computers and civil airplanes exhibit strong growth, other manufacturing activities struggle. Data indicates that the year-on-year growth rate for capital goods shipments reached 5.6% in Q3, but shipments from other manufacturing sectors experienced only marginal growth of 0.4%, a figure that falls well below historical averages. The limited scale of the computer and civil aviation sectors further exacerbates this situation, as they collectively represent a small fraction of total manufacturing activity.

In terms of market share, capital goods account for approximately 17% of total manufacturing shipments. Within this category, the computer-related industry constitutes roughly 3%, while civil aviation represents about 16%. The impressive 14% year-on-year growth in civil aircraft shipments in Q3 translates to only a 2% growth contribution to capital goods overall and a mere 0.3% to the total manufacturing sector. It becomes clear that the robust performance of these sectors, while noteworthy, is insufficient to trigger a broad-based improvement in manufacturing sentiment, as evidenced by the subdued PMI.

Looking ahead to 2025, the outlook for corporate investment in capital goods paints a cautious picture. Given the uncertainties surrounding the future trajectory of civil aircraft investment and the anticipated sustained growth in computer-related sectors, it appears challenging for equipment investment to maintain the same vigor witnessed in Q3 of 2024. Nevertheless, experts anticipate resilience in investment levels, calling for a pragmatic approach to understanding future trends.

To paint a fuller picture of the ongoing economic environment, it is essential to consider recent high-frequency data and events. Notable statistics such as the U.S. core Consumer Price Index (CPI), which recorded an annual rate of 3.2%, falling slightly below expectations of 3.3%, are indicative of persistent inflationary pressures, albeit moderated. Furthermore, retail sales showed a 0.4% increase month-on-month, marking the lowest figure since August 2024, while initial unemployment claims have seen a marginal uptick.

The current economic fundamentals highlight a mixed bag of indicators. On one hand, early signs of recovery can showcase positive trends like the WEI Index reflecting economic improvements and rising commodity prices. Conversely, there are emerging signals of weakness, particularly in consumer spending—evidenced by declining retail sales—and in the housing market, as evidenced by falling mortgage applications. Employment figures also present a nuanced story, with initial unemployment claims surging, presenting a potential concern for the labor market's resilience.

In terms of liquidity in the U.S. economy, conditions have exhibited a slight loosening compared to tightening in the Eurozone. Movements related to the offshore dollar liquidity have further complicated the scenario, with fluctuations in the yen and euro against the dollar showcasing an evolving foreign exchange landscape. Notably, the yield spreads between U.S. and European bonds have narrowed, suggesting shifts in investor sentiment and external economic pressures.

As the U.S. enters the final quarter of 2024, the interplay of these factors will be critical in assessing the broader economic health. While strength in certain sectors brings hope, the overarching narrative remains one of caution as the country navigates through a landscape marked by uncertainty and disparities across various economic dimensions.