January 2012 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of shipments, inventories and new orders were mixed in January for the sectors and industries we track.
 

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Shipments increased for an eighth consecutive month, by $4.1 billion (0.9 percent) to $463.6 billion. Durable goods shipments increased $0.8 billion (0.4 percent) to $208.0 billion, led by transportation equipment. Shipments of nondurable goods increased $3.3 billion (1.3 percent) to $255.7 billion, led by petroleum and coal products. Wood shipments jumped by 4.1 percent while Paper retreated by 0.6 percent.
 

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 0.9 percent increase in not-seasonally adjusted rail shipments in January (relative to December), and a 0.1 percent rise from a year earlier. Seasonal adjustments converted the 0.9 percent December-to-January increase to a 1.8 percent drop, however. Rail shipments of forest-related products were higher on average in January than a year earlier, although all of the gain was concentrated in the Lumber & Wood Products category.

The PCI, which tracks diesel use for over-the-highway trucking, fell 1.7 percent on a seasonally and workday adjusted basis in January -- compounding the 0.4 percent decrease in December. “It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, PCI chief economist. “The PCI also seems out-of-sync with Industrial Production and with Real Retail Sales, which continue to grow in a healthy manner while the PCI is stalled out.”

The PCI’s drop is at least somewhat confirmed by the American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index, which fell 4.0 percent in January after surging 6.4 percent in December 2011. “Last month I said I was surprised by the size of the gain in December. Today, I’m not surprised that tonnage fell on a seasonally adjusted basis in January simply due to the fact that December was so strong,” said Bob Costello, ATA chief economist. Costello noted that December’s increase was the largest month-to-month gain since January 2005.
 

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Inventories, up 27 of the last 28 months, increased $3.9 billion (0.6 percent) to $614.7 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.33, unchanged from December.

Durable goods inventories in January increased $2.4 billion (0.6 percent) to $372.5 billion, led by machinery. Inventories of nondurable goods, increased $1.5 billion (0.6 percent) to $242.2 billion, led by petroleum and coal products. Wood inventories shrank by 1.3 percent while Paper expanded 0.4 percent.

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We had been expecting either the durable-goods inventory-to-shipments (IS) ratio to fall or GDP growth to falter. There had been an apparent disconnect between those two metrics since 1Q2011. The graph above shows a negative correlation between quarterly GDP change and the durable-goods IS ratio (i.e., quarterly GDP change climbs when the value of shipments comes closer to matching that of inventories, causing the IS ratio to fall, and GDP change drops when the value of shipments is outstripped by that of inventories, causing the IS ratio to rise). Note that the IS ratio is inverted in the above figure to demonstrate that the rebound in GDP growth since 2009 has not been supported by shipments of durable goods to the same degree as before the recession.

It is somewhat unusual for GDP change to run counter to its historical relationship with the IS ratio for consecutive quarters (2Q and 3Q2011), thus we had been awaiting a correction: either for the IS ratio to fall or GDP growth to decline. Although the IS ratio fell in December, we would have expected a larger drop if the two metrics were truly moving in tandem once again.
 

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New orders for manufactured goods decreased $4.8 billion (1.0 percent) to $462.6 billion. Excluding transportation, new orders decreased 0.3 percent. Durable goods order decreased $8.0 billion (3.7 percent) to $206.9 billion, led by machinery. By contrast, new orders for nondurable goods increased $3.3 billion (1.3 percent) to $255.7 billion.