MANY FACTORS CONTRIBUTE TO FEBRUARY INCOME SURGENEW ORDERS FOR MANUFACTURED GOODS STALLING OUT?
Today the Commerce Department's Bureau of Economic Analysis released its February report on Personal Income and Outlays. This report contains data on disposable personal income (DPI) and personal consumption expenditures (PCE). DPI is the money we have left over after taxes, and PCE is the amount of that left-over money that we spend. DPI minus PCE, expressed as a percentage of DPI, is known as the savings rate.
In February, DPI rose by 0.7 percent, tying December for the largest increase since last May. PCE rose by 1.1 percent, the highest monthly increase since February 1994. A number of factors probably contributed to the January-to-February increases in these indicators: (1) the return to work of furloughed federal employees, (2) lost time due to bad weather conditions in January, and (3) the large rise in newly employed workers during February.
For the year ending February, personal incomes rose by 5.15 percent. This compares with 6.10 percent for all of 1995 and 4.94 percent during 1994. For the past several years, disposable personal income has risen at an average annual compounded rate of about 5.9 percent.
The savings rate in February was 4.8 percent. For the past six months the savings rate has averaged 4.85 percent. This compares with average rates of 4.5 percent and 3.8 percent in 1995 and 1994. Last month I suggested that a trend toward greater saving might be unfolding. The February savings rate number appears to support that idea.
Elsewhere at the Commerce Department today, the Bureau of the Census released its February report on Manufacturers' Shipments, Inventories, and Orders (Factory Orders, for short).
New orders for manufactured goods in February decreased $4.5 billion or 1.4 percent to $304.4 billion. This was the fourth decline in the last five months and is the largest since the 2.2 percent April 1995 decline. But, once again, the orders number was influenced by large gyrations due changes in orders for airplanes and parts. Excluding the transportation sector, new orders increased 0.2 percent, the third consecutive monthly increase.
Taking a longer-term view, during the year ending in February, new orders grew by 1.19 percent. This is down from a January year-over-year growth rate of 3.73 percent. The annual growth rate in new orders has been trending steadily downward since peaking in 1994 at approximately 13 percent.
Shipments have been up in three of the last four months, increasing by $2.6 billion or 0.8 percent in February following a 1.5 percent January decrease.
Unfilled orders have been up for six consecutive months, increasing in February by $0.4 billion or 0.1 percent to $474.9 billion.
But, manufacturers are still bothered by excess accumulations of unsold goods. In February, inventories increased $1.0 billion or 0.2 percent to $422.3 billion, the seventeenth consecutive monthly increase and the twenty-fourth increase in the last twenty-six months.
In February the inventories-to-shipments ratio was 1.39, down from 1.40 in January. This ratio represents the number of months of sales at the current sales rate that would be required to liquidate current inventories.
Summing up: A number of factors combined to give a boost to disposable personal income and personal consumption expenditures between January and February. The contribution of each of these factors is uncertain. Are we merely experiencing a snapback from the unusual circumstances in January, or are we on the brink of a fundamental shift in the economy?
New orders for manufactured goods continue to trend upward; but, at a steadily decreasing rate of growth. Will the growth rate continue to decline? Will the trend soon turn down?
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Byline: Lafferty (MF Merlin)