June 2010 Manufacturers’ Shipments, Inventories and New Orders: More Weakness

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Shipments, inventories and new orders experienced setbacks at the total manufacturing level in June, along with most performance metrics of solid wood and paper manufacturers.

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Shipments, down for a second month, decreased 0.8 percent (to $411.2 billion) on the heels of a 1.8 percent May decrease. Durable goods retreated 0.3 percent (to $195.1 billion), led by computers and electronic products. Nondurable goods fell 1.3 percent (to $216.1 billion), led by petroleum and coal products.

Shipments from solid wood manufacturers dropped by 6.9 percent (to $6.7 billion) in June, while those of paper manufacturers declined by 0.9 percent (to $14.0 billion).

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Interestingly, data from the Association of American Railroads showed that the volume of material shipped by rail not only jumped by double-digit percentages in June, but also is ahead of year-earlier levels across all of the components we track.

Given the noticeable rise in rail traffic in the face of an overall decline in shipments, one might conclude the trucking industry bore the brunt of the downturn. Indeed, the Ceridian-UCLA Pulse of Commerce Index (PCI), which is based on real-time diesel fuel consumption data from over-the-road trucking, suggests that was the case. The PCI tumbled 1.9 percent in June after an “impressive” 3.1 percent gain in May.

“While June’s number is substantially down, erasing two-thirds of May’s great gain, the daily and weekly activity on which the monthly PCI is based does not suggest that the economy is heading over a cliff,” Edward Leamer, PCI’s chief economist, explained. “Part of the apparent strength of May and weakness in June is the result of the Memorial Day holiday occurring on the last day of May, allowing the negative Memorial Day effect which is usually confined to May to leak into June. More importantly, the June weakness was confined to the first two weeks, and by the second half of June, we were seeing strong growth again.”

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Inventories, down two consecutive months, decreased 0.1 percent (to $520.0 billion) in June; the inventories-to-shipments ratio was unchanged at 1.26. Durable goods increased (by 1.1 percent, to $308.8 billion) for a sixth consecutive month, thanks to computers and electronic products; but nondurable goods more than offset that gain by decreasing 1.7 percent (to $211.2 billion). As with shipments, the retreat in inventories was led by petroleum and coal products.

Inventories of wood and paper manufacturers bucked the overall trend in June; solid wood inventories rose by 0.4 percent (to $9.0 billion) while paper inventories were unchanged at $14.1 billion.

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New orders are again providing fodder for concerns of a slowing economy. Down for a second month, new orders for manufactured goods decreased $5.1 billion (1.2 percent) to $406.4 billion in June. Excluding transportation, new orders decreased 1.1 percent. Durable goods orders dropped by 1.2 percent (to $190.4 billion), led by transportation equipment. Nondurable goods fell by 1.3 percent (to $216.1 billion).