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’s 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 June increased by $5.7 billion or 1.1 percent, following a 0.6 percent decrease in the prior month. Orders increased fairly broadly across industries, particularly for machinery which is a good sign that some of the money that has been injected into the economy might be starting to finally reach factory floors. Actual shipments rose by $900 million or 0.4 percent to $239 billion, and inventories continued an increasing trend up by 0.3 percent to 653.8 billion. These high inventory levels were reflected in the 2nd quarter GDP increase and suggest that manufacturing production is growing at a faster rate than demand, something which is not sustainable.
Examining the data in more detail shows that about 10 percent of the increase in new orders was driven by purchases from the Department of Defense. Even so, many industrial sectors including power equipment (up 17.2 percent), materials handling equipment (up 19.1 percent) and metalworking machinery (up 3.4 percent) were showing signs of growth. New orders for some consumer products like furniture, household appliances and computers remain sluggish, though shipments of computers were up by 10.4 percent over the quarter and inventories were down slightly.
Interestingly, manufacturers seem to be managing inventories well, as the manufacturing inventory/sales ratio has barely moved over the past 4-years. And while inventories are relatively high compared with the prior decade, they are not anywhere near post-recession peaks.
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.
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