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Economy in Brief

U.S. Factory Inventory Decumulation At A Record Pace
by Tom Moeller April 2, 2009

The manufacturing sector continued to shed inventories during February at a record rate. A 1.2% cutback followed declines of 1.1% and 1.9% during the prior two months. Moreover, that amounted to a 15.4% annualized rate of stockpile decumulation which was a record for a three-month period. The series dates back to 1958. Of course, that accelerated rate stems somewhat from the 72.0% rate of decline in petroleum inventories, due mostly to lower prices. Nevertheless, excluding oil factory inventories fell roughly 1.0% during the last two months. The 10.6% three-month rate of decumulation was only slightly exceeded in 2001.

The three-month rates of inventory destocking in several industries have been more than notable. Inventories of electrical equipment & appliances have fallen at a 27.6% rate while textile product inventories were down at a 36.6% clip. Steep production cutbacks pulled furniture inventories down at a 21.7% rate since November while inventories of primary metals fell at a 32.9% pace. Lesser rates of decline were registered in the machinery industry (-4.7%) and by computers & electronic products (2.3%).

Factory shipments continued lower during February prompting the continued lowering of inventory levels. Shipments fell a modest 0.1% but even excluding oil and its lower prices shipments fell at 17.8% rate over the last three months. That was led by a 67.1% rate of decline in automobile shipments. Electrical equipment shipments also fell hard at a 22.8% rate and computers were off at a 20.8% rate. In the nondurable goods area, apparel shipments fell at a 16.4% rate, about the same as for paper products.

Total factory orders recovered during February roughly half of the sharp January drop but over three months the decline was at a 24% annual rate. That was led by a 26% rate of decline in computer orders while motor vehicle orders fell at a 25.1% rate and electrical equipment orders fell at a 13.2% rate.As for order backlogs, they are easing substantially. Sharp declines during the last three months have been at a record 18.1% annual rate.

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

What do we know and not know about potential output? from the Federal Reserve Bank of San Francisco can be found here.

Factory Survey (NAICS, %) February January Y/Y 2008 2007 2006
Inventories -1.2 -1.1 -2.0 2.1 3.7 8.2 
   Excluding Transportation -1.4 -1.2 -4.8 -0.6 2.7 7.9
New Orders 1.8 -3.5 -18.8 0.1 1.9 6.2
   Excluding Transportation 1.6 -2.4 -15.1 3.1 1.2 7.4
Shipments -0.1 -2.6 -14.8 1.7 1.2 5.9
   Excluding Transportation -0.1 -2.4 -14.0 3.7 1.5 6.7
Unfilled Orders -1.4 -2.0 -1.7 3.5 17.1 15.3
  Excluding Transportation -1.5 -2.8 -6.0 -1.0 8.2 16.0
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