Written by Steven Hansen
US Census says manufacturing new orders grew in June. Our analysis concurs with the US Census that manufacturing grew.
- The trend in manufacturing new and unfilled orders is now improving – but it is not broad based making this report weaker than it seems.
- The Industrial Production data disagrees with this Census report – and says the improvement this month was much smaller.
- All the growth was in a single sector – civilian aircraft.
- Manufacturing new orders up 1.5% month-over-month, and up 1.8% year-to-date.
- Market expected month-over-month growth of 2.2% to 2.3%
- Manufacturing unfilled orders up 2.1% month-over-month, and up 5.3% year-over-year
- Manufacturing new orders growth accelerated 2.2% month-over-month, and up 6.0% year-over-year
- Manufacturing new orders (inflation adjusted) up 1.1% month-over-month, up 4.6% year-over-year
- Manufacturing unfilled orders growth accelerated 2.0% month-over-month, and up 3.8% year-over-year
- As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production was growth accelerated 0.2% month-over-month, and up 2.2% year-over-year.
Seasonally Adjusted Manufacturing Value of New Orders – All (red line, left axis), All except Defense (green line, left axis), All with Unfilled Orders (orange line, left axis), and all except transport (blue line, right axis)
From the above graphic, one can see that transport (aircraft – blue line) again pushed manufacturing performance this month. The graph below shows sector growth year-over-year.
Year-over-Year Change Manufacturing New Orders – Unadjusted (blue line) and Inflation Adjusted (red line)
Now look at the manufacturing component of industrial production which monitors production. While it is true that these are slightly different pulse points (inventory not accounted in shipments) – they should not have different trends for long periods of time. In the last few months, both of the trends are less good (growing at a slower rate).
Comparing Year-over-Year Change – Manufacturing Industrial Production (blue line) to Inflation Adjusted Manufacturers Shipments (green line)
Using employment to confirm manufacturing growth says this industry is growing well under 1% – whilst the rate of change is declining (rate of growth is less good).
Employment Growth – Manufacturing (Seasonally Adjusted) – Total Employment (blue line) and Year-over-Year Change (red line)
The health of manufacturing is gauged by the growth of unfilled orders. The rate of growth has been degrading for over one year but improved sharply in the last two months.
Unadjusted Unfilled Orders – Total Current Value (blue line, left axis) and Year-over-Year Change (red line, right axis)
A declining unfilled orders backlog could be a recessionary indication as unfilled orders generally decline in poor economic times.
The headlines from the press release:
New orders for manufactured goods in June, up four of the last five months, increased $7.6 billion or 1.5 percent to $496.7 billion, the U.S. Census Bureau reported today. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 3.0 percent May increase. Excluding transportation, new orders decreased 0.4 percent.
Shipments, down three of the last four months, decreased $2.0 billion or 0.4 percent to $481.8 billion. This followed a 1.0 percent May increase.
Unfilled orders, up four of the last five months, increased $21.5 billion or 2.1 percent to $1,029.9 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 1.2 percent May increase. The unfilled orders-to-shipments ratio was 6.38, up from 6.23 in May.
Inventories, up six of the last seven months, increased $0.7 billion or 0.1 percent to $627.7 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 0.1 percent May decrease. The inventories-to-shipments ratio was 1.30, unchanged from May.
Keep the score on surveys, the all surveys except the the Kansas Fed predicted expansion in March.
Comparing Surveys to Hard Data
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 new orders or unfilled orders generally correlates to the economy – but it is not obvious in real time whether a recession is imminent. So in context to economy watchers – manufacturing by itself cannot be used as an economic gauge.
Adjusted Value – New Orders (blue line) and Unfilled Orders (red line)
The same issues are also evident if manufacturing backlog is used as a recession gauge.