Perhaps now we know why unemployment unexpectedly rose in November. Confirming a durable-goods report from two weeks ago, the Commerce Department reported that the indicator slid 3.4% in October, up from the initial report of 3.3%. Overall, manufacturing declined 0.9% for the month, and the inventory outlook doesn’t give much hope of immediate improvement:
New orders for manufactured goods in October, down following three consecutive monthly increases, decreased $3.6 billion or 0.9 percent to $420.1 billion, the U.S. Census Bureau reported today. This followed a 3.0 percent September increase. Excluding transportation, new orders decreased 0.2 percent. Shipments, up three of the last four months, increased $1.5 billion or 0.3 percent to $421.0 billion. This followed a 0.7 percent September increase. Unfilled orders, up nine of the last ten months, increased $5.2 billion or 0.6 percent to $821.6 billion. This followed a 1.3 percent September increase. The unfilled orders-to-shipments ratio was 5.76, up from 5.67 in September. Inventories, up nine of the last ten months, increased $4.7 billion or 0.9 percent to $538.2 billion. This followed a 1.1 percent September increase. The inventories-to-shipments ratio was 1.28, up from 1.27 in September.
New orders for manufactured durable goods in October, down two of the last three months, decreased $6.9 billion or 3.4 percent to $195.7 billion, revised from the previously published 3.3 percent decrease. This followed a 4.9 percent September increase. Transportation equipment, also down two of the last three months, had the largest decrease, $2.8 billion or 5.2 percent to $52.3 billion. New orders for manufactured nondurable goods increased $3.2 billion or 1.5 percent to $224.4 billion….
Inventories of manufactured durable goods in October, up ten consecutive months, increased $1.5 billion or 0.5 percent to $316.9 billion, revised from the previously published 0.4 percent increase. This followed a 0.7 percent September increase. Machinery, up eight consecutive months, had the largest increase, $0.5 billion or 0.9 percent to $52.4 billion. Inventories of manufactured nondurable goods, up three of the last four months, increased $3.2 billion or 1.5 percent to $221.3 billion. This followed a 1.7 percent September increase. Petroleum and coal products, also up three of the last four months, led the increase, up $1.6 billion or 3.6 percent to $44.7 billion. By stage of fabrication, October materials and supplies increased 0.4 percent in durable goods and 1.0 percent in nondurable goods. Work in process increased 0.4 percent in durable goods and 2.8 percent in nondurable goods. Finished goods increased 0.5 percent in durable goods and 1.2 percent in nondurable goods.
When orders drop and inventories rise, that’s a sign of long-term trouble for manufacturing. The sellers will have to discount more heavily to clear inventory, which will leave them with less profit for future orders and a longer cycle time between orders. Manufacturers will have to slow production, which at the least means a reduction in new jobs created, and could mean layoffs if the cycle continues long enough.
The earlier report had hinted at a significant slowdown in overall manufacturing. In this case, it’s worth noting that while transportation was again an overall drag on the numbers, it wasn’t the entire problem in October either. Even without transportation, manufacturing dropped 0.2% overall. Nondurable goods (items not expected to last five years or more) had a small increase of 1.5%, but the numbers were overwhelmed by the durable goods drop more than 2:1, due to the higher prices durable goods carry.
These numbers show an economy in stagnation, with no real momentum in any direction. Manufacturing had been the one bright spot in the economy in the post-Great Recession period, and it’s now aimless. It has the same problem as the rest of the economy — an uncertain regulatory and investment future, with buffeting from short-term gimmicky interventions that has made business planning nearly impossible.