US Census says manufacturing new orders grew 1.1% in December 2011. Econintersect analysis shows new orders declined 1.3% month-over-month.
Again this month, the data was distorted by abnormally strong sales by Boeing with accounts for half of the reported growth (see caveats at the end of this post).
Regardless, of Boeing or the data coming in under expectations – it is hard to argue this sector is not growing – the argument is only how fast. Inflation adjusted unfilled orders are now growing year-over-year demonstrating clearly an expansion is underway.
- Manufacturing new orders up 1.1% month-over-month, and up 12.1% for 2011 over 2010
- Market expected month-over-month growth of 1.5%
- Manufacturing new orders down 1.3% month-over-month, and up 10.5% year-over-year
- Manufacturing new orders (inflation adjusted) down 0.3% month-over-month, up 4.8% year-over-year
Manufacturing, although growing at a fantastic 10.5% year-over-year growth rate – when adjusted for inflation is growing only 4.8% – but still well above real (inflation adjusted) GDP at 1.7% for 2011.
The unadjusted year-over-year new orders growth rate has been between 10% and 15% most of 2011, but the inflation adjusted rate of growth has been declining since mid-2010.
The health of manufacturing is gauged by the growth of unfilled orders. Econintersect has fine tuned the inflation index this month from the PPI finished goods to the specific PPI index for manufactured goods. The year-over-year inflation adjusted growth is 3,6% – this is real growth finally grabbing hold.
The headlines from the press release:
Summary. New orders for manufactured goods in December, up two consecutive months, increased $5.3 billion or 1.1 percent to $466.2 billion, the U.S. Census Bureau reported today. This followed a 2.2 percent November increase. Excluding transportation, new orders increased 0.6 percent. Shipments, up seven consecutive months, increased $3.4 billion or 0.7 percent to $459.4 billion. This followed a 0.2 percent November increase. Unfilled orders, up twenty of the last twenty one months, increased $12.7 billion or 1.4 percent to $911.5 billion. This followed a 1.3 percent November increase. The unfilled orders-to-shipments ratio was 6.00, down from 6.13 in November. Inventories, up twenty six of the last twenty seven months, increased $0.4 billion or 0.1 percent to $610.1 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent November increase. The inventories-to-shipments ratio was 1.33, down from 1.34 in November.
Caveats on the Use of Manufacturing Sales
The data in this index continues to be revised up to 3 months following initial reporting. The revision usually is not significant enough to change the interpretation of each month’s data in real time. Generally there are also annual revisions to this data series.
The methodology used by US Census Bureau to seasonally adjust the data is not providing a realistic understanding of the month-to-month movements of the data. One reason is that US Census uses data over multiple years which includes the largest modern recession which likely distorts the analysis. Further, Econintersect believes there has been a fundamental shift in seasonality in the aftermath of the Great Recession of 2007 – the New Normal.
Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Depression distort historical data).
This series is NOT inflation adjusted – Econintersect uses the PPI – subindex All Manufactured Goods.
However, this is a rear view look at the economy. Manufacturing generally correlates to the economy – but it is not obvious in real time whether a recession is imminent. If down trends are used, it has given 4 false warnings. If crossing the zero growth line, is used – it did not indicate the last recession until it was half over. So in context to economy watchers – manufacturing sales by itself cannot be used as an economic gauge. [note that graph below is updated through October 2011 data]
The same issues are also evident if manufacturing backlog is used as a recession gauge. [note that graph below is updated through October 2011 data]