Durable Goods Orders Show US Manufacturing Continuing Secular Decline

by Lee Adler, Wall Street Examiner

New orders for manufactured durable goods in March decreased $13.1 billion or 5.7 percent to $216.3 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.3 percent February increase. Excluding transportation, new orders decreased 1.4 percent. Excluding defense, new orders decreased 4.7 percent. Transportation equipment, also down two of the last three months, led the decrease, $11.0 billion or 15.0 percent to $62.4 billion. This was led by non-defense aircraft and parts, which decreased $8.5 billion.

(from Census Bureau)

Economic consensus was for a decline of 3.1% according to the widely followed survey by Briefing.com. As usual, they weren’t close. The old seasonal adjustment bugaboo rears its ugly head–that and the fact that most economists are quacks practicing the dark arts of economics fraudquackery.

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March Real Durable Goods Orders, adjusted for inflation and not seasonally manipulated, declined 1.5% year over year. That compares with a 1.2% year to year increase in February after an upward revision. March is normally a seasonal peak, and it’s pretty clear that the peaks are declining. This isn’t new. It’s part of a downtrend in US manufacturing that has persisted since 1999.

Note: In adjusting for inflation, this measure attempts to represents actual unit volume of orders. Also, the use of actual, versus seasonally adjusted (SA) data allows an accurate view of the trend. With SA data, this may not be the case, since SA data can overstate or understate the real underlying change by attempting to fit the data to a standardized curve. There are no such issues when using the actual data (see Why Seasonal Adjustment Sucks).

New orders volume remains well below the 2004 through 2007 levels. Those years were when the housing bubble was in full swing, but current levels of orders are even below 1998 through 2000 and 2001 through 2003 when the US was in recession after the internet/telecom/tech bubble collapsed. The economy may be growing in other areas, but the pace of activity by this measure is still no better than the worst level of 2002. This data has consistently shown since 2011 that manufacturing in the US is not recovering. The US is producing less stuff today than it did 5 years ago, or 15 years ago.

To see how this data performed on a short term basis, since it’s actual NSA data, it’s necessary to compare it to March in previous years. March is always an up month and almost always the peak month of the year. The month to month change in March over the prior 10 years averaged +15.8%. This March had a gain of only 3.3%. That was smaller than any March gain of the previous 10 years. By contrast, March 2012 saw a gain of 6.1%, and March 2011 was up 24.6%.

The trend is clearly negative. It’s a long way from all the mainstream media pundit stories of a US manufacturing renaissance. The trend of US manufacturing looks dead in the water. The Fed will only see more ammunition for the argument to continue its massive money printing campaign. Keynesian econoquacks will blame the tax increases that went into effect in January, but that would also be wrong based on the real time data on withholding taxes which have risen by substantially more than is attributable to the rate increases. The decline in US manufacturing is part of a secular trend that shows no real sign of reversing.

The stock market has been following the growth of the Fed’s balance sheet, just as Bernanke has ordered. But he’s had less success at getting US manufacturing on its feet. It has stalled out in spite of massive Fed money creation and a stock market bubble.

The stock market has shown that it can go on its merry way higher for several years with little or no growth in manufacturing. Durable goods manufacturing makes up only 5-6% of the US economy. So it’s a good idea not to get hung up on durable goods orders as a stock market indicator.  The market is always its own best indicator, but if you are looking for economic data that correlates well with stock prices, look at the Fed’s balance sheet and Industrial Production.

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