May 2016 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $0.2 billion or virtually unchanged to $456.5 billion in May. Shipments of durable goods decreased $0.6 billion or 0.2% to $231.6 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $0.8 billion or 0.3% to $224.9 billion, led by petroleum and coal products. Shipments of both Wood (+0.1%) and Paper (+0.3%) rose. 

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Inventories decreased $0.8 billion or 0.1% to $619.7 billion. The inventories-to-shipments ratio was 1.36, unchanged from April. Inventories of durable goods decreased $1.1 billion or 0.3% to $382.6 billion, led by machinery. Nondurable goods inventories increased $0.3 billion or 0.1% to $237.1 billion, led by chemical products. Inventories of Wood expanded +0.5% while Paper contracted -0.3%. 

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New orders decreased $4.6 billion or 1.0% to $455.2 billion. Excluding transportation, new orders increased 0.1% (but -2.6% YoY -- the 19^th consecutive month of year-over-year contractions). Durable goods orders decreased $5.4 billion or 2.3% to $230.4 billion, led by transportation equipment. New orders for nondurable goods increased $0.8 billion or 0.3% to $224.9 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- dropped by 0.4% (-2.9% YoY). Business investment spending has contracted on a YoY basis during all but two months since January 2015.

Prior to July 2014, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012, recouping on average 70% of the losses incurred since the beginning of the Great Recession. With July 2014’s transportation-led spike gradually receding in the rearview mirror, the recovery in new orders is back to just 47% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders increased $1.7 billion or 0.2% to $1,138.9 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.90, down from 6.94 in April. Real unfilled orders, which had been a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders in June 2014 were back to 97% of their December 2008 peak. Real unfilled orders jumped to 122% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Since then, however, real unfilled orders have moved mostly sideways and are penetrating further below the January 2010-to-June 2014 trend line.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.