May 2010 Manufacturers’ Shipments, Inventories and New Orders: Broad-based Decline

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Shipments, inventories and new orders all experienced setbacks at the total manufacturing level in May, but most performance metrics of the solid wood and paper manufacturers improved.

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The value of shipments, down following two consecutive monthly increases, decreased $5.3 billion (1.3 percent) to $416.8 billion. The decline in shipments of durable goods was led by the ever-volatile transportation equipment, which retreated by 2.8 percent. Shipments of nondurable goods also declined, led by petroleum and coal products. Petroleum and coal products were down 8.0 percent, the largest decrease since December 2008.

Forest products manufacturers put in a mixed performance in May. Solid wood shipments declined 0.9 percent (to $7.2 billion) while paper shipments rose 0.7 percent (to $14.2 billion).

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Although the value of paper shipments may have increased, data from the Association of American Railroads show that the volume of material shipped by rail declined in May. Nonetheless, rail traffic remained well ahead of year-earlier volumes.

The Ceridian-UCLA Pulse of Commerce Index (PCI), which is based on real-time diesel fuel consumption data from over-the-road trucking, provides a “contrary” piece of evidence. The PCI climbed 3.1 percent in May, the first increase this year. “Absent good news from the usual recovery indicators – i.e., consumer optimism expressed by buying homes and cars, and business optimism expressed by hiring – the spike in the PCI is indeed very welcome news for the economy,” said Ed Leamer, the PCI’s chief economist. “One month does not make a trend, but at least we are back in a recovery groove.” According Ceridian, the May results “suggest the recovery is on pace for GDP growth in the healthy range of 3 to 5 percent for the second quarter of 2010, moving closer to the 5 to 6 percent increase necessary to drive down the unemployment rate.”

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Inventories, down following four consecutive monthly increases, decreased $2.0 billion (0.4 percent) to $520.4 billion in May. Inventories of durable goods increased 0.9 percent (to $304.7 billion), led by primary metals. Inventories of manufactured nondurable goods decreased 2.1 percent (to $215.7 billion), driven lower by petroleum and coal products.

Solid wood and paper inventories “bucked” the wider trend in May: Wood inventories rose by a substantial 9 percent (likely in response to a concurrent jump in lumber futures prices); the rise in paper inventories was a more modest 0.5 percent.

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New factory orders may be providing a sign that manufacturing (and perhaps the broader economy) could be starting to cool. New orders for manufactured goods in May, down following eight consecutive monthly increases, decreased $5.8 billion (1.4 percent) to $413.2 billion. Excluding transportation, new orders decreased 0.6 percent.

New orders for durable goods decreased 0.6 percent (to $192.9 billion), led by transportation equipment. Orders for nondurable goods fell 2.1 percent, to $220.4 billion.

"Manufacturing has been the star of the economy this year so any signs that conditions are turning would cause some concern," said Joel Naroff, president of Naroff Economic Advisors. "The demand for products is slowing."