March 2010 Manufacturers’ Shipments, Inventories and New Orders

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Census Bureau data showed the U.S. manufacturing sector posted reasonably solid gains in March.

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Shipments, up seven consecutive months, increased $8.6 billion or 2.2 percent to $395.6 billion; this followed a 0.4 percent February increase. Shipments have returned almost to the midpoint between the peak of July 2008 and the trough of May 2009.

Shipments of manufactured forest products rose as well: Solid wood increased 2.1 percent between February and March, while paper products increased 2.6 percent.

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Inventories, up five of the last six months, increased $1.5 billion or 0.3 percent to $500.7 billion; this followed a 0.7 percent February increase. The inventories-to-shipments ratio was 1.27, down from 1.29 in February.

Wood and paper manufacturers bucked the prevailing trend and reduced their inventories by, respectively, 0.5 and 0.3 percent. Despite the uptick among solid wood manufacturers earlier in the year, the forest products sector appears to be in the midst of a secular trend of declining inventories.

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New orders for manufactured goods in March – up during 11 of the last 12 months – increased $5.0 billion (1.3 percent) to $391.5 billion. This followed a 1.3 percent February increase. Excluding transportation, new orders increased 3.1 percent.

New orders for manufactured durable goods in March, down following three consecutive monthly increases, decreased $1.0 billion or 0.6 percent to $178.7 billion, revised from the previously published 1.3 percent decrease. New orders for manufactured nondurable goods increased $6.0 billion or 2.9 percent to $212.8 billion.

Retail Sales Increased in March: The Question is “Why?”

Total retail sales increased by 1.6 percent (to $363.2 billion) in March, a sign – according to many economists – that the recovery is broadening. “What we’re seeing now is the consumer take part in the recovery,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. “The Fed’s not taking the punch bowl away quite yet,” because inflation is “very tame,” he said.

However, rising unemployment and home foreclosures beg the question: “Where is the money coming from to support higher retail sales?” There are a couple of interesting possibilities beyond the most obvious (i.e., that those still employed are feeling a little freer with their pocketbooks):

* Anecdotal evidence indicates some homeowners are foregoing mortgage payments and purchasing “stuff” with the money they should be paying for housing. We doubt this practice is sufficiently widespread to materially boost consumer spending, but it is useful to be aware of this development.

* The Census Bureau’s method for calculating year-over-year changes uses only same-store sales for comparison; there is no attempt to account for the loss of sales at firms that have gone bankrupt (or underperforming chain stores that have closed) in the intervening time period. Same-store sales rise if, for example, the same total volume of merchandise is being sold through fewer outlets. Since the Census Bureau samples only a portion of existing retail establishments and infers activity of the entire industry from that sample, one can see how the result might look fairly positive.

Alternative views of retail activity, like sales tax revenue and real-time data on internet purchases of major durable goods provide a different – and more pessimistic – picture. Time will tell which view is right.