Manufacturing New Orders Stable in July 2010

Manufacturing appears stable in July 2010 with the gentle decline of backlog continuing. The seasonal adjustment factors used in this month’s release again appears flawed.   The release stated in part:

New orders for manufactured goods in July, up following two consecutive monthly decreases, increased $0.6 billion or 0.1 percent to $409.5 billion, the U.S. Census Bureau reported today. This followed a 0.6 percent June decrease. Excluding transportation, new orders decreased 1.5 percent.

Shipments, also up following two consecutive monthly decreases, increased $4.4 billion or 1.1 percent to $417.1 billion. This followed a 0.5 percent June decrease.

Unfilled orders, down following three consecutive monthly increases, decreased $1.1 billion or 0.1 percent to $802.8 billion. This followed a 0.1 percent June increase. The unfilled orders-to-shipments ratio was 5.53, down from 5.59 in June.

Inventories, up six of the last seven months, increased $5.1 billion or 1.0 percent to $526.0 billion. This followed a 0.1 percent June increase. The inventories-to-shipments ratio was unchanged at 1.26.

Seasonal adjustment factors are a mindless quantitative process. It depends which years are compared, and the methodology used to make the comparison.  If you are comfortable reading charts, it is better just to observe.

I find it difficult to see any improvement in new orders, and am a little concerned comparing the July YoY. If you are a new normal type of person, you must discount pre-recession relationships. But in any event, the July figures seem ok. One month is not a trend anyway.

I could care less about inventories as it only relates to GDP (and not the real economy).

But I continue to be concerned with backlog. Backlog reduction means you still have some more people to fire, and it raises questions about the economic direction. It is a simple fact that backlog grows in an improving economy.

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