Manufacturing Is Stronger than the 0.9% Decline Reported in October

Manufactured goods new orders declined in October 2010.  The headlines:

New orders for manufactured goods in October, down following three consecutive monthly increases, decreased $3.6 billion or 0.9 percent to $420.1 billion, the U.S. Census Bureau reported today. This followed a 3.0 percent September increase. Excluding transportation, new orders decreased 0.2 percent.

Shipments, up three of the last four months, increased $1.5 billion or 0.3 percent to $421.0 billion. This followed a 0.7 percent September increase.

Unfilled orders, up nine of the last ten months, increased $5.2 billion or 0.6 percent to $821.6 billion.  This followed a 1.3 percent September increase. The unfilled orders-to-shipments ratio was 5.76, up from 5.67 in September.

Inventories, up nine of the last ten months, increased $4.7 billion or 0.9 percent to $538.2 billion. This followed a 1.1 percent September increase. The inventories-to-shipments ratio was 1.28, up from 1.27 in September.

Econintersect uses unadjusted data which is different than the seasonally adjusted data used in the headlines.

Even with your eye, you can see that it depends on which years are compared whether new orders declined or rose.

New orders are up if you compare to 2006 and 2008, and down if you compare 2005, 2007 & 2009.  If we throw out 2007, Econintersect would call new orders up.

Conclusion – it is the data adjustment and comparison methodologies used which determines whether orders are up or down.  As the answer is not obvious, the safest call is that orders are flat in October 2010.

The good news is manufacturing backlog is developing an upward trend.  This is telling us that capacity is matched to the economic conditions.

Manufacturers inventories are continuing to drift upwards – now 6% higher YoY.  Compare this to the 7%+ increase in new orders YoY.  Inventory growth appears in line with business growth.

Overall, Econintersect does not walk away from this October data feeling that manufacturing growth is down.  It appears healthy, and overall has the flavor of a slight growth bias.