Written by Steven Hansen
US Census says manufacturing new orders grew 1.3% in February 2012 following January’s 1.1% decline. Econintersect analysis shows new orders grew 5.8% month-over-month.
The data was strong across the board with the prime pushers being HVAC (heating, ventilating and air conditioning) and defense and civilian aircraft. Ignoring inflation, this was historically high manufacturing new orders for Februarys.
Econintersect’s analysis of unfilled orders confirmed this improvement jumping up 1.1% month-over-month. The data this month broke the downward growth trend channel – returning manufacturing growth to range of growth seen between mid 2010 to mid 2011.
- Manufacturing new orders up 1.3% month-over-month, and up 10.9% year-to-date
- Market expected month-over-month growth of 1.4% to 2.0%
- Manufacturing unfilled orders up 1.3% month-over-month, and up 10.3% year-to-date
- Manufacturing new orders up 5.8% month-over-month, and up 13.8% year-over-year
- Manufacturing new orders (inflation adjusted) up 6.4% month-over-month, up 9.0% year-over-year
- Manufacturing unfilled orders up 1.1% month-over-month, and up 10.6% (inflation adjusted 5.8%) year-over-year
Year-over-year growth has reversed its declining trend, and has returned to its former range. Note the below data is unadjusted.
The unadjusted year-over-year new orders growth rate has been between 10% and 15% most of 2011, and growth has returned to this range.
The health of manufacturing is gauged by the growth of unfilled orders. The year-over-year inflation adjusted growth is 5.8% – this is real growth grabbing hold. The blue line is unadjusted data.
The headlines from the press release:
New orders for manufactured goods in February, up three of the last four months, increased $6.0 billion or 1.3 percent to $468.4 billion, the U.S. Census Bureau reported today. This followed a 1.1 percent January decrease. Excluding transportation, new orders increased 0.9 percent. Shipments, up nine consecutive months, increased $0.3 billion or 0.1 percent to $462.6 billion. This followed a 0.6 percent January increase. Unfilled orders, up twenty-two of the last twentythree months,increased $12.1 billion or 1.3 percent to $931.1 billion. This followed a 0.7 percent January increase.
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 December 2011 data]
The same issues are also evident if manufacturing backlog is used as a recession gauge. [note that graph below is updated through December 2011 data]