US Manufacturing orders and inventories to January 2016

A little late in reviewing this data, but here are the takeaways:

We know new order growth had slowed considerably and had been sharply negative for some time at the nominal and moderately so at the real.

The rate of decline has since halted, but real growth is pedestrian and looks to have plateaued at a time when headline employment rates suggest the economy is close to “full” employment. 

Inventories have been scaled back but remain high, and particularly so in the key motor vehicle and parts sector which has shown weakening in momentum and the notable transportation sector.

Wage growth/consumer credit relationships are strained and it is difficult to see where domestic demand growth is going to come from, especially with the global weakness we have seen elsewhere.

Manufacturing is a small but central cog in the machine: its components are used everywhere and a slowdown in one connected cog inevitably implies a changing dynamic elsewhere.

And the pictures:

Manufacturing inventories ex petroleum and coal have been on a steady monthly decline:

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Even the important motor vehicles and parts inventory data had rolled over into negative territory (blue line: average monthly change over 6 months), and we can tie this to the weakening in MVP retail sales of late:

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MVP inventories are nevertheless at high levels, buoyed by strong credit financed demand and inventories, given the low wage growth context, are a high risk:

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MVP new order growth has also declined in the last few months (blue line RHS axis):

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There was a sharp monthly rebound in capital goods inventories (due to volatile transportation) but the trend is one of weakening growth cycles:

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Total real new order levels have plateaued:

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Annual growth rates remain weak at both a real and a nominal level, hardly a sign of core strength: manufacturing may be a small cog in the growth machine but everything we do on the consumption and service side depends to some extent on a manufactured item so a slowdown in manufacturing impacts all the gears in the engine at some point in time: image

And on a shorter time frame: yes we have a bounce back of late, but this at the moment looks more to do with weakness at this point last year and possibly weather enhanced.

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If we delve deeper into the data we see that the shorter term nominal data is pointing to weakness:

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But real smoothed data shows stability:

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At the durable goods level we see a similar pattern:

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And the also at the core non defence capital goods excluding aircraft:

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The trend in consumer goods orders also looks to be on a recent downward trend:

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It is worthwhile reflecting on the relationship between growth in MVP new orders relative to the growth in disposable personal income. 

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We can see this concern in the relationship between consumer credit growth and disposable income, itself at all time highs:

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Inventories remain high:

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