· For the second straight month factory inventories increased, a turn following thirteen consecutive months of decline. Moreover, October gains were revised up slightly. The latest monthly increase owed largely to a 3.8% jump (-26.5% y/y) in auto inventories which was the second consecutive month of strong gain. That rise was offset by a 1.9% drop (+6.0% y/y) in defense aircraft and a 0.3% slip (+2.4% y/y) in nondefense aircraft inventories. Elsewhere, the inventory turn has been limited to the metals and petroleum industries along with higher prices. 

· Apparel inventories (-18.6% y/y) continued their decline of more than a year as did machinery inventories (-13.3% y/y), though the latter's decline has slowed significantly. Electrical equipment inventories (-18.9% y/y) also continued to fall but, again, the monthly rates of decline have slowed as they have for computers & electronic products (-9.9% y/y). 

· Higher factory shipments are likely to encourage the holding and/or building of inventories. Shipments rose 1.0% during November for the third straight month of strong increase. Shipments of electrical equipment shipments (-9.2% y/y) have been strong for two months as have machinery shipments (-20.3% y/y) for two of the last three. Primary metals (-16.6% y/y) have shown notable monthly increases since May and furniture inventories (-14.5% y/y) also seem to have turned toward accumulation. 

· Improved factory new orders are part of the sector's improvement. They rose 1.1% in November, in part reflecting the strength in petroleum prices. A 0.5% monthly increase had been expected. Elsewhere, metals orders (-7.3% y/y) have improved as have orders for machinery (-14.2% y/y) and computers (-2.4% y/y). New orders for electrical equipment & appliances have perhaps turned the most, moving to a 0.7% y/y gain from a 30.5% decline as of June.

· The Manufacturers' Shipments, Inventories and Orders (MSIO) data are available in Haver's USECON database.

· The Economic Outlook is yesterday's speech by Fed Governor Elizabeth A. Duke and it can be found here.

Factory Survey (NAICS, %)

October

September

Y/Y

2006

Inventories

-1.3

-10.3

8.2 

New Orders

1.6

-3.2

6.2

Shipments

1.3

-3.8

5.9

Unfilled Orders

-0.4

-10.9

15.3