Manufacturing orders fell 1.2% in April, retail retreats

The economic news keeps getting bleaker for the Obama administration and Americans in general.  The manufacturing sector, which had been one of the few bright spots in the wan recovery period over the last two years, turned negative in April.  Orders for manufactured goods dropped 1.2%, shipments decreased 1.3%, and ominously, inventories once again increased:

New orders for manufactured goods in April, down two of the last three months, decreased $5.5 billion or 1.2 percent to $440.4 billion, the U.S. Census Bureau reported today.  This followed a 3.8 percent March increase.  Excluding transportation, new orders decreased 0.2 percent.  Shipments, down following seven consecutive monthly increases, decreased $0.9 billion or 0.2 percent to $444.5 billion.  This followed a 3.1 percent March increase.  Unfilled orders, up twelve of the last thirteen months, increased $2.5 billion or 0.3 percent to $850.7 billion.  This followed a 0.7 percent March increase.  The unfilled orders-to-shipments ratio was 6.08, up from 5.96 in March.

Inventories, up eighteen of the last nineteen months, increased $7.7 billion or 1.3 percent to $587.8 billion.  This followed a 1.4 percent March increase.  The inventories-to-shipments ratio was 1.32, up from 1.30 in March.

Demand continues to fall, while inventories continue to rise.  That means that retailers have enough backlog to keep orders down for at least a while, probably through the summer — especially if food and fuel price increases continue to erode disposable income.  Retailers have already begun to announce missed targets, and the Morgan Stanley retail index dropped slightly in trading this morning:

Stocks were little changed on Thursday, a day after suffering their biggest losses in nearly a year, as a slight improvement in weekly jobless claims failed to impress and chain-store sales were lackluster. …

Target Corp (TGT.N) edged down 0.8 percent to $48.19, and Gap Inc (GPS.N) dropped 2.1 percent to $18.51 as they both missed estimates. The Morgan Stanley retail index (.MVR) fell 0.8 percent.

New orders received by U.S. factories declined in April, partly because of a sharp drop in demand for transportation goods, according to a Commerce Department report.

Transportation certainly contributed to the drop, but orders declined even apart from transportation by 0.2%.  Excluding transportation, inventories rose even further than overall by 1.4%.  Transportation goods are certainly under pressure in a tough economy, most likely because of rapidly increasing fuel prices, but that is hardly the only weak spot in manufacturing.  Target and The Gap don’t sell cars, after all.

So is this time for Panic At The NASDAQ?  One CNBC talking head seemed to think so yesterday (via Greg Hengler), as did CNBC’s Patrick Allen later:

The last month has been a horror show for the U.S. economy, with economic data falling off a cliff, according to Mike Riddell, a fund manager at M&G Investments in London.

“It seems that almost every bit of data about the health of the US economy has disappointed expectations recently,” said Riddell, in a note sent to CNBC on Wednesday.

“US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing.”

“And that’s just in the last week and a bit,” said Riddell.

Pointing to the dramatic turnaround in the Citigroup “Economic Surprise Index” for the United States, Riddell said the tumble in a matter of months to negative from positive is almost as bad as the situation before the collapse of Lehman Brothers in 2008.

I’m less inclined to panic. The dramatic turnaround came as artificial stimulus from government spending petered out, not from a basic change in the private sector.  Unlike the collapse of Lehman Brothers, most analysts could see this coming.  We’re heading for stagflation rather than a collapse in a bubble — or perhaps more accurately, the only bubble popping is the Keynesian bubble that Obama used to convince people that Obamanomics would work.  We’re back to near-zero growth, and the fuel price issue has consumers protecting their disposable income.

It’s not good news at all, though, and the outlook for the rest of this year keeps getting more and more grim.