Factory Orders Decline in April, Confirming Recent Trend
Earlier today, the U.S. Census Bureau released final factory order numbers from April, with new orders down 1.2 percent from March. Much of this analysis was discussed in greater detail in a blog post last week with the release of preliminary durable goods orders, which declined 3.6 percent. The transporation sector took the largest hit, falling 9.3 percent (revised from 9.5 percent in the preliminary analysis). Excluding transporation, new orders dropped 0.2 percent. New orders for nondurable goods rose 0.6 percent. Unfilled orders grew 0.3 percent, and inventories were up for 16 straight months.
Overall, this analysis confirms the larger trend seen in April and May data. Manufacturing output fell dramatically in those months, largely due to supply chain and other issues. Yesterday’s ISM numbers for May were weak, especially given the strength of the sector earlier this year. But, the good news is that the ISM numbers were mostly above 50 (except for inventories) — a sign that the sector is still growing, albeit much slower than before. Tomorrow, we will see employment numbers that will continue to reflect this weakness, perhaps mirroring the decline in manufacturing employment seen in the recent ADP numbers.
Interestingly, yesterday I participated in a webinar to discuss the economy for RSM McGladrey. The firm recently released the Spring 2011 Manufacturing & Distribution Monitor, which surveys firms on their current business outlook. As we have seen in recent regional Federal Reserve Bank surveys, while current economic indicators are negative, the longer-term forecast is more positive. This represents a juxtoposition of views that might be difficult for people to reconcile (unless they see the current bad news as a temporary one). The McGladrey survey, for instance, finds that 90 percent of its respondents have a favorable view of the business environment and over half want to hire new workers in the next 12 months. This is positive news that hopefully bodes well for future releases regarding manufacturing, production, and employment.