The manufacturing sector is not quite on a roll despite the widespread belief in ISM reports and Fed regional activity reports that have been wildly off the mark.
Factory orders for May came in at -0.8% vs an Econoday consensus estimate of -0.5%. In addition, the commerce department revised April factory orders lower, from -0,2% to -0.3%.
Nonetheless, Econoday dug deep to find positives.
Forecasters thought factory orders would get a lift from nondurables but they didn’t as total orders fell 0.8 percent in May vs Econoday’s consensus for minus 0.5 percent. Nondurable orders, held down by weakness in petroleum and coal, also fell 0.8 percent as did durable orders where last week’s advance data showed a 1.1 percent decline.
But there are positives in today’s report and they include a small lift for core capital goods orders (nondefense ex-aircraft) which, boosted by a jump in mining equipment, rose 0.2 percent vs last week’s initial estimate for a 0.2 percent decline. A small plus is a 1 tenth upward revision to April which is now at plus 0.3 percent. Shipments for core capital goods, which are inputs into second-quarter business investment, are similarly revised upward, now at plus 0.1 percent and 0.2 percent in May and April.
Weakness in the report includes aircraft orders with both commercial and defense falling in the double digits in the month. Orders for motor vehicle & parts rose a very solid 1.2 percent though consumer goods fell 0.2 percent.
But manufacturing activity, as described in last week’s PMI manufacturing report, is no better than subdued as total shipments rose only 0.1 percent following no change and minus 0.2 percent in the two prior months. A clear negative is a 0.2 percent decline in unfilled orders. Inventories fell 0.1 percent following no change in April, keeping inventories-to-shipments steady at a lean 1.38 ratio that points, however, to a defensive outlook that won’t be helping second-quarter GDP.
There are bright spots in this report which overall, however, is consistent with a sector that is struggling to find momentum.
Shipments
Shipments were up 0.1% but excluding transportation, shipments were down 0.3%. Nondurable goods shipments which account for about half of all shipments were down 0.8%. orders were likewise down 0.8%. These are strong signs of faltering consumer demand for junk.
Let’s hone in on transportation shipments.
Auto shipments were up in March, April, and May. What the dealers will do with those shipments is not a mystery. They will be forced to offer major discounts.
Light trucks, a category that includes SUVs, was up 4.5% but that is on the heels of a 2.9% decline in April and 1.5% in March.
Motor vehicle parts were up 0.3% and 0.9% in May and April respectively, following a 0.9% decline in March.
Dealers are undoubtedly sitting on inventory they will struggle to sell given simultaneous declines in consumer and rental company demand, increased sales of foreign autos, and falling used car prices.
How the BEA will value the build in dealer inventories remains a mystery.
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I see no reason to change my belief that the GDPNow and Nowcast models for second quarter GDP are too high. For discussion, please see Increasingly Confident GDPNow Estimate Way Too High.
Mike “Mish” Shedlock
Long time no hear about “Channel Stuffing” for which 2 smarties at Bristol Myers went to the Big House. CEO Heimbold simply disappeared because à l’américain the Feds were looking for Charles whereas it was Chuck…No interest in Signor Draghi’s tinker with Target 2 accounting concealing capital flight while erasing Italy’s current debt (so how can Italian pols worry about that? And no concern about USD collapse when the Euro blows together with the DXY?
What would we buy if we were not being “marketed” to continuously?
Maybe it’s my age, but I found myself frustrated by this, not because they are trying to manipulate me, but because after knowing this, I still find myself motivated by it, almost unconsciously “needing” to buy things. At this point I think the best resistance we have is that they have so over saturated us with marketing that we are simply confused….four different auto adds at every TV commercial break…..I just can’t make up my mind now WHICH one to buy.
The reality is that very few of us physically NEED anything. If advertising, marketing of all kinds stopped tomorrow, the world would come to an end.
The whole damned thing is fake…and we know it and fear armageddon if it were to end.
It’s like being in that dream state where you are aware enough to know it is a dream but it is so pleasurable that you deliberately try to suppress awakening to continue the delusion.
Damn! awake again….back to work.
hypnagogic
I have no idea what stuff Madashell “needs” individually…
But as a society, we NEED to pay down some debt. We DESPERATELY need to pay down debt.
As a society, we desperately need to save up for a rainy day fund.
As a society, we DESPERATELY need to save money to fund retirement / old age.
That is what we most need to “buy” right now, and no amount of stupid from the Federal Reserve can change this. Consumers are proving to know more about economics than all the quacks at the Fed.
Any business that relies on financing (more and more debt) has had 10-15 years of bumper crops, and should be planning for 10-15 years of famine.
I “need” everything they tell me I need…a new car (several at least), a Carl’s 3-way cheese burger (just like they show on TV), Icy Hot smart relief for my aching back, and a fantastic new drug that will reduce my depression while increasing the chance that I will go on a mass murder spree or simply kill myself. What is it that YOU need?
Maybe you are immune. I am much more than I used to be, but my point is that our economy survives on unnecessary consumption that is driven my unending marketing, not just by advertising but in product placement, and just about any way you can imagine.
Sure, we need to save, and I have, but if we were spending on actual investments, on things that produce income rather than burn it, it would be a good step in the right direction. Instead we buy worthless crap, and worse still buy it and consume it on credit. we are going completely the opposite direction we should be going, but our government tells us our first responsibility is to spend, to consume, to BORROW, to keep this ship afloat.
I remember having to wait to buy anything “extra”, you had to save and you were sure by the time you bought something that it was wanted, that you took care of it and appreciated it afterwards.
What we actually need is to be out of debt, to own the roof over us, to not be reliant on high income or subsidy to survive.
Debt is the card to not get left back, but you find it leaves you constrained to being always one step behind and never settled with where you are.
“Auto Sector Channel Stuffing”
What is old, becomes new again. A cycle returns to a familiar place.
we’re beyond “channel stuffing” … into foie gras territory.
June 2016 total new vehicle sales 16.8 million SAAR
GM dealer inventory 72 days
June 2017 total new vehicle sales 16.41 million SAAR
GM dealer inventory 105 days
Families are saving up to pay the air conditioning electric bill.
What will be interesting is how households react – when it becomes common knowledge – that new vehicle prices are falling.
vicious cycle?
What to do after your $60K pickup is $20K underwater?
spider,congradulations on passing your R. E. test l think you will great it,do you remember your friend tracy you worked with her in wall.st.then she moved to deerfield beach florida,well the last time l spoke to her she was with a fancy real estate firm in manhattan,that was about 10 years ago her number then was 1 212 744 4318 who knows maybe she is a partner their or maybe you can a day with her or maybe her firm is looking to hire
Off topic, IL winning the race to the bottom.
http://www.zerohedge.com/news/2017-07-05/terrible-news-illinois-moodys-puts-state-review-downgrade-junk-despite-budget
As consumer demand for just about everything is slowing (seems like it’s picking up momentum to the downside), I fully expect the government spending to kick into high gear by fall. Just watch construction spending (public projects), followed by vehicle sales (government fleet sales), to soar. The only problem with this scenario is the Fed hiking rates. This is why the non mainstream economists are saying the Fed will stop hiking rates by fall, and lower them by next year. Consumer debt is WAY too high, and if the government doesn’t kick in the spending, a recession will hit that could be very deep and devastating.
Debt spending caused the problem. More debt spending will make things worse.
Time to let the economy reset and adjust to spending within our means
I am trying to understand if retail sales are being replaced by online ordering for a net no change in consumer spending. My friend works at Williams-Sonoma. She tells me the mall is dead, and people come into the store to look at products and then go home and order them with free shipping from Williams-Sonoma online. The clerks there don’ t make commission, but they do want to keep their jobs so of course this is frustrating to them. My friend thinks sales are flat overall when you add in online and brick and mortar sales.
My other question is how many baby boomers are like me and Mish and starting a new career instead of retiring? I left another career in my late 50s to become a teacher (yes all of you teacher pension haters, a teacher). I did it because I have always liked working with kids, and I am in a wierd time warp where my friends my age are retiring and sitting at home watching game shows all day while I still feel like I’m 25. It’s also nice to continue earning some income, and I have enjoyed the challenge of learning new skills. I can tell you that while I have some kids with behavioral problems it is refreshing to see how much good is in the next generation. I wish all of you could see how every student in my school is protective, patient, and kind to our students with autism. There is a part of me that thinks I won’t retire from teaching until age 75, and who knows I may have 20 plus years of real retirement after that. Am I the only one thinking this way?
There is always something worthwhile to do, and no reason it shouldn’t be something you find rewarding.
Hi Muriel. First, let me congratulate you on taking up a new career later in life. I admire you for doing so. I am not a big believer in retiring and sitting around wasting your time. If you can still contribute to society, that’s great! Plus, I admire your desire to teach. It is a noble career in spite of what a few may say on this site.
I have also started a teaching career late in life, working part time for a charity that helps older adults acquire necessary skills. It is very rewarding. My father worked till 85 and I hope to do the same or better. I also still work part time in my regular job as I don’t want to completely give it up.
Regarding online sales, they are definitely increasing each year and reducing brick and mortar sales. I agree with you that combined overall sales are probably flat.
I don’t think anyone here disdains teachers per se. What some people don’t like is when teaching becomes politicized, financialized, incorporated, when it becomes zealous or a holier than thou cause.
“There is nothing noble in being superior to your fellow man; true nobility is being superior to your former self.”
― Ernest Hemingway
In other words charity is a cause, but selfless giving does not ask for recognition, whether there is an associated pre-agreed compensation of wider expense also present or not. Few people would toil just to be able to give all reward away, as they would encourage others to be inconsiderate, plus have to then rely on the generosity of others. Any decent person should be thankful though for finding those that appreciate and make use of what he or she knowingly has in excess to give.
Hi Crys. Hemingway was right. Well said. I personally believe that life requires balance. I still earn a good income from my regular work. What I gain from “giving” is a sense of well being and satisfaction from those who appreciate what I do for them. I wouldn’t call it selfless. I prefer “win-win”.
I learned this from my father (the greatest man I ever knew). He taught me that a man should leave the world a better place than when he arrived.