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The Manufacturing Sector is Rolling Over But Inventories Keep Piling Up

Summary:
Factory new orders are down year-over-year and barely afloat excluding transportation. Inventories are a concern. The monthly report on Manufacturers’ Shipments, Inventories and Orders, shows strong signs of a manufacturing sector that has peaked. New Orders New orders for manufactured durable goods in May, down three of the last four months, decreased .1 billion or 1.3 percent to 3.5 billion, unchanged from the previously published decrease. This followed a 2.8 percent April decrease. Transportation equipment, also down three of the last four months, drove the decrease, .8 billion or 4.6 percent to .0 billion. New orders for manufactured nondurable goods decreased %excerpt%.5 billion or 0.2 percent to 0.1 billion. Shipments Shipments of manufactured durable goods

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Factory new orders are down year-over-year and barely afloat excluding transportation. Inventories are a concern.

The Manufacturing Sector is Rolling Over But Inventories Keep Piling Up

The monthly report on Manufacturers’ Shipments, Inventories and Orders, shows strong signs of a manufacturing sector that has peaked.

New Orders

New orders for manufactured durable goods in May, down three of the last four months, decreased $3.1 billion or 1.3 percent to $243.5 billion, unchanged from the previously published decrease. This followed a 2.8 percent April decrease. Transportation equipment, also down three of the last four months, drove the decrease, $3.8 billion or 4.6 percent to $80.0 billion. New orders for manufactured nondurable goods decreased $0.5 billion or 0.2 percent to $250.1 billion.

Shipments

Shipments of manufactured durable goods in May, up following two consecutive monthly decreases, increased $0.9 billion or 0.3 percent to $254.2 billion, down from the previously published 0.4 percent increase. This followed a 1.6 percent April decrease. Machinery, up four of the last five months, led the increase, $0.3 billion or 1.0 percent to $33.4 billion. Shipments of manufactured nondurable goods, down following three consecutive monthly increases, decreased $0.5 billion or 0.2 percent to $250.1 billion. This followed a 0.4 percent April increase. Petroleum and coal products, also down following three consecutive monthly increases, drove the decrease, $1.3 billion or 2.4 percent to $54.7 billion.

Unfilled Orders

Unfilled orders for manufactured durable goods in May, down three of the last four months, decreased $6.3 billion or 0.5 percent to $1,171.1 billion, unchanged from the previously published decrease. This followed a 0.2 percent April decrease. Transportation equipment, also down three of the last four months, led the decrease, $5.7 billion or 0.7 percent to $803.7 billion.

Inventories

Inventories of manufactured durable goods in May, up ten of the last eleven months, increased $2.0 billion or 0.5 percent to $424.6 billion, unchanged from the previously published increase. This followed a 0.4 percent April increase. Transportation equipment, also up ten of the last eleven months, drove the increase, $2.2 billion or 1.6 percent to $138.5 billion. Inventories of manufactured nondurable goods, down two consecutive months, decreased $0.6 billion or 0.2 percent to $269.6 billion. This followed a 0.1 percent April decrease. Petroleum and coal products, down following four consecutive monthly increases, drove the decrease, $0.6 billion or 1.5 percent to $41.3 billion.

Core Capital Goods

Econoday finds some good news in the report: “Now the good news and that’s core capital goods orders (nondefense ex-air) which rose 0.5 percent for a 1 tenth upward revision from the advance reading. The Federal Reserve is focused on questions over the strength of business spending and this result should ease their immediate concerns.”

I used to follow that line item closely, but it is way over-rated.

The theory behind core capital good is that it is a measure of business investment and thus a leading indicator of future production.

Note the line in green in the above chart. Month-to-month fluctuations are totally random, even seasonally adjusted. In the Great Recession, that item did not turn lower until the recession was half over.

Year-Over-Year Chart

The Manufacturing Sector is Rolling Over But Inventories Keep Piling Up

Year-Over-Year Numbers

The Manufacturing Sector is Rolling Over But Inventories Keep Piling Up

Manufacturers’ Inventories

The Manufacturing Sector is Rolling Over But Inventories Keep Piling Up

Inventories to Order Comparison

  • Inventories, are up 10 of the last 11 months to new record highs.
  • Even non-transportation inventories are near the all-time high.
  • Boeing may very well have skewed transportation numbers.
  • But excluding transportation, new orders year-over-year are barely in positive territory at +0.28% growth.
  • Overall, new orders are down 1.16% and durable goods new orders are down 2.75%.

This is not a healthy picture.

Lance Roberts
Lance Roberts has sharpened that lens with 30 years in the investing world from private banking and investment management to private and venture capital. Lance Roberts’ perspective and common sense analysis is sought after by media outlets such as Fox 26 News in Houston, CNBC, CNN and Fox Business News along with numerous publications including the Wall Street Journal, USA Today, Reuters and the Washington Post. Roberts is the Editor of the X-Factor report and publishes the blog Daily X-change.

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