Manufacturing Issues

Manufacturing is obviously in a slump, to put it nicely. We are in a manufacturing recession, and I would like to look into this just a little bit. After doing some morning reading on Bloomberg, they made my argument for me.

A couple manufacturing indexes came out today. One is the Empire State Manufacturing Survey, which is a manufacturing index for the state of New York. The other is U.S. business inventories, which is obviously a indicator on the change of monthly inventory levels.

Let's start with the manufacturing survey, which came in at a two year low of 3.8 from an estimated 10. I would guess the survey was grossly over estimated. So what, we have know that manufacturing is a mess for a long time now. When will the sector see a turn around? That's a great question and I'm glad you asked. I know who has an answer, how about Bloomberg:

"Most factory indicators suggest that activity in the manufacturing sector remains subdued, a situation that is most likely to persist until the inventory correction has more full run its course"

That was taken from an article at Bloomberg regarding the analysis of the Empire State Manufacturing Survey. I agree whole heartily with them. Until manufactures can get rid of their excess inventories, there's no need to manufacture anything else.

Well the next statistic mentioned is U.S. Business Inventories which was conveniently released this morning as well. That statistic said inventories, which were already at high levels, increased another .30%. Uh oh. It looks like there's still some time left in the "inventory correction."

So what does this mean? Another great question. I would like to recall my previous post on 4Q GDP. It increased, and I said that the reason for the increase was the increase in inventory levels for manufactures and that I expect the 1Q GDP to decrease for the same reason the 4Q GDP increased.

It looks as if I was spot on with that one. The most recent inventory numbers shows that manufactures are struggling to get rid of their stock piles. This doesn't mean that they will completely shut down, but they will definitely cut production. I expect this to really show up in 1Q GDP growth.