Strong Improvement for Manufacturing in December 2010

After months of analysis showing manufacturing was flat, Econintersect believes the US Census o.2% improvement in new orders for December 2010 is understated – and likely the improvement was 1.1%.

There never was a dispute that manufacturing has grown YoY – but seasonal adjustments need to consider several years.   Because of the Great Recession and New Normal anomalies – depending on which years were used in building your seasonal adjustment methodology, your conclusions would vary.

It also should be noted that if you use only 2009 as a baseline for seasonal adjustment, the YoY improvement has been in a tight range since July. Interesting that July 2009 corresponds to the NBER end of recession date.

Econintersect believes this is the New Normal baseline which will begin to introduce more certainty in seasonal adjustment factors beginning in mid-2011 where 2 years of New Normal baseline data is available.

The headlines from the press release:

New orders for manufactured goods in December, up five of the last six months, increased $0.7 billion or 0.2 percent to $426.8 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent November increase. Excluding transportation, new orders increased 1.7 percent.

Shipments, up four consecutive months, increased $8.4 billion or 2.0 percent to $436.0 billion. This followed a 1.6 percent November increase.

Unfilled orders, down following eight consecutive monthly increases, decreased $3.5 billion or 0.4 percent to $822.8 billion. This followed a 0.5 percent November increase. The unfilled orders-to-shipments ratio was 5.58, down from 5.72 in November.

Inventories, up eleven of the last twelve months, increased $5.8 billion or 1.1 percent to $550.4 billion.  This followed a 0.9 percent November increase. The inventories-to-shipments ratio was 1.26, down from 1.27 in November.

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

The good news is manufacturing backlog gradual but quite smooth upward trend continues.  This is telling us that capacity is matched to the economic conditions.

As a final note, looking at the unadjusted inventories and inventory to sales ratios – they remain stable indicating this sector remains stable.

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