Manufacturing is Up in May 2011 but Is No Longer a Green Shoot

The headlines say manufacturing sales in May 2011 are up 0.8% month-over-month.  Although this is technically correct, manufacturing remains within a less good channel after adjusting for price inflation.

New orders for manufactured goods in May, up two of the last three months, increased $3.5 billion or 0.8 percent to $445.3 billion, the U.S. Census Bureau reported today. This followed a 0.9 percent April decrease. Excluding transportation, new orders increased 0.2 percent. Shipments, up eight of the last nine months, increased $0.4 billion or 0.1 percent to $443.9 billion. This followed a 0.4 percent April decrease. Unfilled orders, up thirteen of the last fourteen months, increased $7.7 billion or 0.9 percent to $860.9 billion. This followed a 0.6 percent April increase. The unfilled orders-to-shipments ratio was 6.12, up from 6.11 in April. Inventories, up nineteen of the last twenty months, increased $4.5 billion or 0.8 percent to $593.0 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.5 percent April increase. The inventories-to-shipments ratio was 1.34, up from 1.33 in April.

The health of manufacturing is gauged by the growth of unfilled orders.  This month our analysis adjusted the order value to inflation – to see if the number of “widgets” under order was actually increasing.

Surprise!  Unfilled orders actually only grew in November and December of 2010.   During 2011, the number of widgets on order (but not shipped) has been declining.  This tells that there is too much capacity – and too many employees.

Manufacturing is no longer a green shoot.

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