Want to know why the economy has seen jobs eroding over the last two months? Today’s report from the Commerce Department on factory orders gives an unpleasant explanation. Orders fell by 0.6%, the third decline in this area in four months and a demonstration that falling demand is becoming a serious issue:
New orders for manufactured goods in April, down three of the last four months, decreased $2.9 billion or 0.6 percent to $466.0 billion, the U.S. Census Bureau reported today. This followed a 2.1 percent March decrease. Excluding transportation, new orders decreased 1.1 percent. Shipments, down following four consecutive monthly increases, decreased $1.5 billion or 0.3 percent to $473.2 billion. This followed a 0.1 percent March increase. Unfilled orders, down following twenty-seven consecutive monthly increases, decreased $0.8 billion or 0.1 percent to $985.4 billion. This followed a slight March increase. The unfilled orders-to-shipments ratio was 6.33, up from 6.29 in March. Inventories, up twenty-two of the last twenty-three months, increased $0.1 billion to $607.2 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.1 percent March increase. The inventories-to-shipments ratio was 1.28, unchanged from March.
Demand fell across the board in April:
New orders for manufactured durable goods in April, down three of the last four months, decreased $0.1 billion to $215.2 billion, revised from the previously published 0.2 percent increase. This followed a 3.7 percent March decrease. Machinery, also down three of the last four months, had the largest decrease, $0.9 billion or 2.9 percent to $31.0 billion. New orders for manufactured nondurable goods decreased $2.9 billion or 1.1 percent to $250.8 billion.
Overall, inventories continue to rise at record levels. Durable-goods inventories increased 0.3% even while sales dropped slightly in that category. Shipments increased significantly, 0.6% in durable goods alone, which means that there are lower backlogs of orders to fill. That combination will depress factory activity in the near term, perhaps all summer long, especially if demand doesn’t rebound.
Reuters calls this report a “surprise,” and notes that March’s numbers got revised downward as well:
New orders for U.S. factory goods fell in April for the third time in four months as demand slipped for everything from cars and machinery to computers, the latest worrisome sign for the economic recovery.
The Commerce Department said on Monday orders for manufactured goods dropped 0.6 percent during the month. The government also revised its estimate for new orders in March to show a steeper decline.
Economists had forecast orders rising 0.2 percent in April.
The report showed broad weakness in a sector that has carried the economic recovery, adding to a growing body of soft economic data.
Oddly, David Axelrod appeared yesterday on CBS’ Face the Nation to argue that manufacturing was the US economy’s bright spot. So what’s the problem? According to the mastermind behind the Bain “vampire capitalist” attack strategy that focused on the few failures at the private-equity firm (some not even while Romney worked there), Republicans are “high-fiving” bad economic news for political gain:
While acknowledging that Friday’s job numbers were disappointing, David Axelrod, a top adviser to President Obama, said on Sunday that GOP lawmakers should stop cheering bad news and work with the White House to pass its job proposals.
“Instead of high-fiving each other on days when there is bad news, they should stop sitting on their hands and work on some of these answers,” Axelrod said during an appearance on CBS’s Face the Nation.
Axelrod said while Friday’s job numbers for May, which showed only 69,000 jobs were created, were not good enough, manufacturing continues to be a bright spot. He also argued that problematic sectors such as construction and education could be boosted by Obama’s jobs proposals, which call for increasing funding for infrastructure projects and hiring back laid-off teachers.
“If you look at the jobs report, what was interesting about it, manufacturing up,” Axelrod said. “What was down was construction, what was down was education. The very things that the president has been trying to get the Congress to act on were the things that were down.”
Actually, the House has passed more than a dozen jobs-related bills in this session. The Democratic-controlled Senate has refused to consider them. Anyway, the problem in the economy is not that there hasn’t been enough government intervention — it’s that we’ve had too much, in terms of regulatory growth and gimmicky incentives that have distorted the market and created massive ambiguities and uncertainties. Pointing out that the data supports arguments that the Obama administration has gone in the wrong direction isn’t “high-fiving” bad news, it’s an acknowledgment that the US needs a broad change in economic policy, one which Obama is unwilling or unable to discern.
The key ISM index fell to 49.9 from 61.2 in April, where a reading below 50 indicating contraction. There was no consensus estimate for the May report.
The Institute blamed the fall on declining purchase volumes and a sudden contraction in employment, with 21 percent of businesses reporting a shortage of skilled labor as an impediment to business.
Expectations of economic performance also declined in the May report.