The monthly manufacturing report (factory orders) is compiled from results of the U.S. Census Bureau’s Manufacturers’ Shipments, Inventories, and Orders survey. This survey provides statistics on the state of the manufacturing industry based on responses from approximately 4,300 firms representing 89 industry categories The survey methodology assumes that the month-to-month changes of the total operations of those companies in the monthly survey effectively represent the month-to-month movements of all establishments that make up the category. The survey panel is comprised of companies with $500 million or more in shipments and a limited number of smaller companies.
According to the survey, new orders for manufactured goods in September increased by $8.1 billion or 1.7 percent to $490.8 billion, following d a 0.1 percent decrease in August. The increase was driven almost completely by orders for transportation equipment which rose by 12.9 percent, . In fact, once the highly variable transportation equipment orders are removed, overall factory orders were off by about $1 billion or 0.2 percent. There was some growth in the metals and electronics sectors but overall factory orders outside of transportation were weak. Actual shipments from factories were up by a very small $400 million, with aircraft helping to push shipments into positive territory. Shipment growth has been falling over the past quarter, and actual factory shipments are down once seasonal adjustment factors are removed. Inventories continue a three month growth pattern and were up by about $2.7 billion (0.4 percent) over the prior month. This growth in inventories has been driving 2013 GDP growth and is likely unstainable over the long term.
The growth in inventories is particularly troublesome. This suggests that even though factory production has been rising, there has not been corresponding growth in sales. Sluggish demand has been one factor dragging the economy down despite the massive pump-priming by both the Federal Government and the Federal Reserve. When it comes to inventories, much of the stockpiling over September was related to durable goods, particularly automobiles, trucks, and defense related equipment.
On the positive side, the value of unfilled orders – orders currently in the manufacturing pipeline, was up sharply in September – over $9 billion or 0.9 percent to just over $1 trillion. This is a continuation of a trend that has unfilled manufacturing orders up 6.5 percent over last year. This suggests that even though certain economists have suggested that demand is weak and that is leading to slow economic growth, the opposite is actually true and that production is not keeping pace with demand, particularly in industries like primary metals production, computers and household appliances.
Factory orders and production are an important part of the American economy. Since manufacturing represents between 12 and 13 percent of GDP it is important in and of itself. In addition, manufacturing firms have the highest multipliers in the economy with each dollar of manufacturing creating as much as 2 or 3 additional dollars in the service sector.