The headlines today blared of a 3% increase in factory orders in February, completely obscuring the truth of just how bad the US manufacturing trend is. The real story lies in the fact that factory orders have been flat for two years and have trended lower for the last four months.
That four month period coincides with the Fed’s QE3 cash injections into the financial system. As the Fed blows bubbles and helps bankers accrue massive illusionary profits and pad their bonuses, US manufacturing lays dead. The evidence shows that the Fed’s inflationary tactics are impacting the stock market but leaving the real, productive part of the US economy untouched. In spite of 6% population growth since 2007, the nation’s volume of factory orders is the same as it was 6 years ago. The recession bungee rebound of 2009-2010 has long since stalled. Meanwhile the Fed pumps $100 billion or more a month into the trading accounts of the Primary Dealers.
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New factory orders (actual, adjusted for inflation and not seasonally adjusted), a broader measure than durable goods orders because it includes non-durables, dropped 1.9% year to year in February. It was the 4th straight year to year decline.
The headline numbers are not adjusted for inflation, and include seasonal adjustments that result in a fictitious number that can obscure the trend (See Why Seasonal Adjustment sucks). I adjust this measure for inflation and use not seasonally manipulated data in order to give as close a representation as possible to the actual unit volume of orders and thus the actual trend.
The actual NSA data is noisy and volatile. In order to see the trend we need to look at it using the tools of the technical analyst, just as we look at price data in the stock, commodity, and bond markets. These methods work just as well in making economic data trends more easily visible. Charts an essential part of the process. You cannot understand a trend that you can’t see. We must look at the current monthly data in the context of the long term trend picture.
Real new factory orders, NSA, were up 3.3% month to month. In isolation, that’s a decent reading. February is typically an up month, rising in eight of the prior 10 years. February 2012 saw a rise of 5%. February 2011 was down by 0.8%. The average February change during the previous 10 years was an increase of 2.1%. This year’s number was better than the average, but about average if the 2009-10 recession readings are excluded.
More important is the big picture trend and the response of manufacturing to Fed stimulus. After rebounding sharply from the 2009 bottom through early 2011, the trend then stalled. The annual growth rate has been in a downtrend since April of 2010 and has been at or below zero for the past year. Since the Fed started settling its QE3 MBS purchases in November, this index has shown no material improvement. The money printing is not trickling out into the manufacturing sector. The just released ISM data suggests that the factory data for March won’t be any better and could be worse.
Don’t believe the hype about a return of US manufacturing. As the Fed blows another stock market bubble, a US manufacturing revival just ain’t happening. Another asset bubble not supported by real, qualitative and quantitative growth in what the economy actually produces, will not end well. They can obscure the truth for a while, but time is not on the side of the market manipulators.
Excerpted and adapted from the permanent chart page on ISM and Factory Orders
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