This morning the Commerce Department's Bureau of the Census released its September report on Manufacturer's Shipments, Inventories, and Orders. New orders for manufactured goods in September increased $4.6 billion or 1.5% to $306.5 billion. This follows a 2.7% increase in August. For the year to date, new orders were 7.6% higher than the same period last year. New orders for the third quarter were 1.7% above those for the second quarter.
What accounted for the $4.6 billion increase in September? Were consumers buying more cars, refrigerators and TV's? Well, there's always some of that going on. But, far and away, the biggest contributor to the $4.6 billion jump was airplanes. Aircraft and parts accounted for $4.1 billion of the September increase. When the contribution due to airplanes is removed, the net increase for September drops to .17%.
Looking back at the August report I found that airplanes accounted for a large part [65%] of the growth for that month as well. So, I guess I need to further temper the guarded optimism I expressed on 10/26 when I was discussing the advance report on New Orders for Durable Goods for September. If you own or work for whichever airplane companies are the recipients of these new orders, congratulations. But, aside from that, the net contribution of new factory orders to the economy during the last couple months has been small.
In the Inventories section of today's report we find that inventories of durable goods in September increased by 0.5%, the nineteenth increase in the last twenty-one months. Inventories of nondurable goods increased by 0.7%, up for the twelfth consecutive month. Thus, manufacturers seem to have an ongoing problem with producing more stuff than they are selling. Excessive inventories can lead to reduced production which, in turn, can lead to increased unemployment.
And, while we're talking about unemployment, today's release of figures on claims for unemployment insurance showed that new claims for the week ended October 28 had risen by 6,000 to 365,000 -- the highest level since mid-September. We'll report tomorrow on the Labor Department's employment report for all of October.
Moving from the manufacturing level to the retail level of the economy we find that today the nation's retailers announced their same store sales results for the month of October. Some stores did better than last month; but, many did not. Overall the gain over a year ago was 0.3%. Among the major retailers, Wal-Mart's gain dropped to 1.7% vs 4.2% last month, K-Mart slipped to 4.0% from 5.5%, and Dayton-Hudson plunged from 5.3% to 0.7%. Sears managed to eke out a small improvement, rising from 4.5% to 4.6%. But, J. C. Penney went from a bad -0.9% to a worse -8.3%. It's no wonder all those unsold goods are stacking up at the manufacturing level.
How did the markets respond to all this luke-warm economic news. In its perverse, bad-news-is-good-news fashion, the bond market was delighted. Bond investors and traders regarded today's reports as convincing evidence that inflation - the big, bad, bugaboo of the bond market - was destined to remain under control. Late this afternoon the 30-Year T-Bond was up 21/32. Historically, declining bond yields have been a good leading indicator of rising stock prices. So, the stock market joined in the celebration. At the closing bell the DJIA was flirting with a new all-time high.
Byline: Lafferty (MF Merlin)