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 April increased by $4.9 billion or 1.0 percent following a 4.7 percent decrease in the prior month. Most of this increase was due to new orders for transportation equipment. Actual shipments fell by $3.5 billion or 0.7 percent to $478.7 billion continuing a three month trend. Inventories were up slightly ($1.1 bilion) to $627.9 billion – the highest level since 1992. Examining the data in more detail shows that most of the increase in new orders was driven by purchases from the Department of Defense (51 percent of overall growth) hardly a sign of a booming private sector economy. Orders in key production industries like machinery were up only slightly reflecting a continued sluggish economy.
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, at least defense is actually growing as a share reflecting some stocking up in the wake of sequestration.
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. Manufacturing has been driving the growth in the economy since the recession, and this is starting to tail off. Without continued growth in these industries it is unlikely that the economy will begin to rapidly generate new jobs, tax revenues and other opportunities.