Manufacturing Data In "The New Normal"

Here are the two most recent headlines from the U.S. Census reports (October  and November):

New orders for manufactured goods in October, down following three consecutive monthly increases, decreased $3.6 billion or 0.9 per cent to $420.1 billion.

New orders for manufactured goods in November, up four of the last five months, increased $3.2 billion or 0.7 per cent to $423.8 billion.

Global Economic Intersection has reported a different interpretation of the same data (here and here):

For October, new orders are up if you compare to 2006 and 2008, and down if you compare 2005, 2007 & 2009.  If we throw out 2007, Econintersect would call new orders up.  Including all five comparisons, new orders are flat.

At $37 billion, November is one of the smaller year-over-year new order increases in 2010, not showing any significant growth trend in the current month.

What is the difference?  The U.S. Census Bureau is using seasonally adjusted data and GEI uses the unadjusted data and makes comparisons year-over-year.  Because of the distortions introduced by The Great Recession and The New Normal, the traditional seasonal adjustment factors are suspect.

Here is the graph of the unadjusted manufacturing new orders data which makes evident the year-over-year comparisons:


Photo: Global Economic Intersection

The consistency of new orders year-over year increases through the year 2010 is seen in the following table:


Photo: Global Economic Intersection

After a significant bump up in the spring, the rest of 2010 saw twelve month increases of $40 million +/- $10 million.  The GEI conclusion is that new orders for the year are showing a small growth pattern over the prior year and are basically flat during the year.  The question is whether 2011 can do as well since the new numbers will be compared to a stabilised new normal of 2010.

There is an area of the Census reports that shows a more encouraging pattern, and that is order backlog, which has clearly established a gradual and stable up trend.


Photo: Global Economic Intersection

The traditional seasonal adjustment processes may produce more reliable conclusions in 2011.  All that is needed is for the New Normal to continue 2010 trends or change in a gradual way.  If we see much stronger or much weaker growth in 2011 than in 2010, year-over –year analysis of the unadjusted data could continue to give a better assessment of economic trends.

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