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Economy in Brief

U.S. Factory Inventories Up, Orders Drop Belies Factory Strength
by Tom Moeller March 6, 2006

Factory inventories grew 0.5% in January following an upwardly revised 0.6% increase during December. Though the rate of inventory accumulation slowed sharply during the last year, the 3.5% y/y growth contrasts with outright decumulation from 2001 to 2003 and probably suggests only cautious management rather than a pessimistic outlook.

A 1.1% (2.4% y/y) increase in primary metals inventories was accompanied by a 1.1% (2.1% y/y) rise in fabricated metals, but both paled next to a 1.7% (6.9% y/y) gain in electrical equipment and a 1.1% (5.8% y/y) increase in machinery.

Total factory orders dropped 4.5% from December and the advance report of a 10.2% plunge in durable goods orders was mitigated only slightly to -9.9%. The drop reflected a huge 68.3% (+61.4% y/y) decline in nondefense aircraft and a 20.9% (+57.4% y/y) drop in defense aircraft & parts. Factory orders less the transportation sector altogether rose 1.6% (8.3% y/y).

Factory shipments increased 0.3% but less transportation shipments rose 1.4% (7.5% y/y), a gain inflated only slightly by higher petroleum prices.

Unfilled orders fell 0.7% after the 2.6% surge which was powered by higher aircraft orders. Less the transportation sector, backlogs rose 0.4% (10.5% y/y) for the second consecutive month.

Factory Survey (NAICS) Jan Dec Y/Y 2005 2004 2003
Inventories 0.5% 0.6% 3.5% 4.4% 7.7% -1.1%
New Orders -4.5% 1.6% 6.9% 8.5% 9.3% 3.5%
Shipments 0.3% 2.4% 7.2% 7.4% 9.5% 1.5%
Unfilled Orders -0.7% 2.6% 16.1% 16.5% 8.4% 8.0%
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