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Economy in Brief

Slower U.S. Factory Inventory Accumulation: Oil & Computers
by Tom Moeller December 6, 2006

Factory inventories rose an even slower 0.4% during October, half the 0.8% average gain during the prior six months. It was the slowest increase since a 0.5% decline in inventories during February and the y/y rise ticked lower to 7.1%.

The slowdown has been mostly due to lower oil prices which in October were mostly responsible for a 4.9% (+5.6% y/y) decline in petroleum refineries' inventories. Less petroleum, factory inventories grew 0.7% (7.1% y/y) in October, equal to the average of the prior six months.

Inventories of computers & electronic products recovered 0.6% (8.7% y/y) after a 0.1% slip during September, though the latest figure reflected a 17.2% (-11.2% y/y) drop in computers. Primary metals inventories surged 1.6% (19.0% y/y) in October, though that was the slowest increase in four months. Inventories of electrical equipment rose 0.5% (10.9% y/y) after the 0.9% September drop yet the 3-month change fell to 5.2% (AR), half the rate of growth during the first nine months of 2006. Furniture inventories rose 1.1% and the 3-month change rose to 10.2% while machinery inventories increased 0.3% after a 1.6% September spike.

Total factory orders fell a hard 4.7% reflecting the 8.2% drop in durable goods orders which was little revised from the advance report. That reflected a 44.6% (+23.0% y/y) plunge in aircraft orders. Factory orders less transportation fell 0.8% (+1.4% y/y). Much of the recently slower growth in this measure reflects petroleum where orders (which equal shipments) fell 3.7% (-15.1% y/y) in October. Still, non-transportation orders less oil fell 0.6% (+3.3% y/y) in October for the third consecutive monthly decline.

Factory shipments rose 0.1%. Factory shipments less transportation & petroleum eked out a 0.4% (3.7% y/y) increase after a 2.6% September decline.

Unfilled orders rose another 1.2% due to a 2.4% (53.9% y/y) jump in civilian aircraft. Less the transportation sector altogether backlogs rose 1.0% (13.3% y/y).

Factory Survey (NAICS) October September Y/Y 2005 2004 2003
Inventories 0.4% 0.6% 7.1% 4.0% 6.9% -7.4%
New Orders -4.7% 1.7% 0.6% 8.5% 7.5% 0.9%
Shipments 0.1% -4.2% 1.0% 7.1% 6.8% 0.2%
Unfilled Orders 1.2% 4.1% 21.9% 16.3% 4.5% -1.0%
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