July 2010 Manufacturers’ Shipments, Inventories and New Orders: Anemic Growth

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Shipments, inventories and new orders at the total manufacturing level all posted modest gains in July, according to the U.S. Census Bureau.

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Shipments, up following two consecutive monthly decreases, increased $4.4 billion (1.1 percent) to $417.1 billion. Durable goods, up four of the last five months, increased $4.5 billion (2.3 percent) to $200.6 billion; transportation equipment had the largest increase -- $3.4 billion (7.0 percent) -- within durable goods. Nondurable goods declined for a fourth month (by $0.1 billion in July).

Shipments from solid wood manufacturers declined by 0.5 percent while paper manufacturers saw a 1.9 percent increase.

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Interestingly, data from the Association of American Railroads indicate an overall decrease in the volume of rail traffic in July; this decrease extended into forest products-related shipments. Based upon results of the Ceridian-UCLA Pulse of Commerce Index for July, however, some of the slack in rail traffic may have been absorbed by the trucking industry.

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Total inventories inched up in July, by $5.1 billion (1.0 percent). The inventories-to-shipments ratio was unchanged at 1.26. The $1.7 billion (0.6 percent) advance in durable goods was led by machinery. Petroleum and coal products led the increase in inventories of nondurable goods.

Solid wood inventories fell by 1.3 percent while paper rose 0.6 percent.

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The markets had mixed reactions to the report on new orders, primarily because overall growth was anemic and activity was concentrated in the aircraft sector. Overall, new orders rose $0.6 billion (0.1 percent). Excluding transportation, new orders decreased 1.5 percent -- the biggest drop in 16 months. Durable goods orders increased $0.7 billion (0.4 percent) while orders for nondurable goods were essentially unchanged at $216.5 billion.

"This report is consistent with the loss of momentum we're seeing in a lot of reports," said James O'Sullivan, chief economist at MF Global, in reaction to the preliminary, late-August report (which was more encouraging than the final report). "The economy has clearly downshifted," he said, noting that the debate is now centered on how long the soft-patch will last.