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Wednesday, March 26, 2008

Headlines Bad, But....

When I compare Treasury receipts, trucking, rail, durables, etc, the picture I get is of a fundamental upturn in production. The YTD inventory/shipment ratio on the durables report looks quite healthy, with the exception of motor vehicles.

In particular, both primary and fabricated metals look strong.

The consumer side of the economy is quite weak, and will continue to weaken. Financials are a Shakespearean tale of stupidity, terror and woe. But so far the productive side of the economy is in a much stronger on a YoY basis, and this would account for the fact that Federal Unemployment Taxes (FUT) is looking healthy. (The positive YoY on FUT should change as we enter the period in which construction is most active.)

Take a gander at these figures from the durables advance (YTD 2008/2007 comparison):
Total durables:
Shipments: 4.0%
Inventories: 4.2%
Shipments: 5.0%
Inventories: 1.9%!!!!!
Shipments: 3.5%
Inventories: 3.6%

Now indicator categories:
Primary Metals:
Shipments: 8.6%
Inventories: -0.4%!!!
Fabricated Metals:
Shipments: 2.4%
Inventories: 1.8%
Shipments: 12.9%
Inventories: 5.7%!!!
Computers and Electronics:
Shipments: 6.3%
Inventories: 0.2%!!!
These figures agree well with Japanese figures. Capital goods are so-so. Shipments are up 7.6% and inventories are up 9.1%, but even these ratios are much better than the 07/06 comparable period.

Last year's release for February is here. For example, total durables shipments were up 0.5 YTD, but inventories were up 8.9%. Capital goods shipments were up 1.8%, whereas inventories were up 7.9%. The ratios between inventories and shipments tell you more about the current conditions than anything else, and by that standard, this year's situation is strikingly improved over 2007.

I'm not saying that we are not in a recession. I'm saying that the imbalances in our economy which produced this recession are adjusting, which is a very promising sign. This will limit the damage and eventually produce a lot of growth in services.

The task before the Fed is to prevent the financial sorrow and woe from starving out this production upswing. It will take quite a while for the health in this sector to overcome the impact of all the bad debt out there, and if the bad debt causes the supply of money to dry up to this sector, we'll really be in dire straits.

A note about New Orders:
To anyone who has actually worked in industry, new orders booked for shipment at a considerably later time are suspect. When you see new orders rising and rising but somehow shipments stay trickling along at a low level, you ought to be highly skeptical of those new orders.

Hello MOM - I agree 100%. But add 'housing related mfg' to the horror show along with automotive - its every bit as bad.

But the long trek out of the swamp is starting I believe... be wrong turns & reverses but I also see the imbalances starting to rebalance.
Oh yes, anything housing is pretty sunk, and will be sunk for several years. But it isn't a durables category on the advance report.
Not to make too big a deal of this but autos and indeed most durables are lasting much longer and could probably last even longer if necessity dictates. We might just be seeing the effects of the dollar on US competitiveness. That speaks to an interesting problem for Europe. Boeing was a winner at USD:EUR of 1:1. With that now at 2:3 Airbus should be dead.
Boeing was a winner at USD:EUR of 1:1. With that now at 2:3 Airbus should be dead.

Dawg - remember in the 'old daze' when Boeing would get big mil contracts to keep it healthy against the state subsidized Airbus? I do some aero myself & talked to a guy in Wichita who told me the recent refueler contract to Airbus looks to him to be the same in reverse... US mil needs competitive bids AND it needs happy allies (if we expect them to keep rotating bodies into Afghanistan).

How things change...
Damn you dryfly. Yes, I would never venture to talk about military contracts because they aren't visible to the world. I remember seeing trains carrying "F-18" fuselages to strange places on the tracks near where I lived and laughing.

No, I'm talking people moving flying thingies. A Dreamliner is dirt cheap in Euros.

As to those "keep healthy" contracts; yeah the sad part is what was available and ignored in new technology.

Don't get me started but we plain old have gotten every bit balled up in air superiority as our ancestors did in naval dominance. F-22s own the skies. We should call then Bismarks in honor.
Agree that it just may be the weak dollar.

Shakespeare, one of the greatest --or was it more than one person doing all that writing?

Still, this also points up the necessity of doing something about energy. I am all for green energy such as solar, wind and so forth, but it doesn't run manufacturing plants.

The US has got to get itself out of the energy bind.
Still, this also points up the necessity of doing something about energy. I am all for green energy such as solar, wind and so forth, but it doesn't run manufacturing plants.

MOM - energy, like money, is fungible. If we use a bunch of 'green energy' for other stuff... like solar voltaic on Rob Dawg's roof to cool his home in Cali & passive solar to heat my home in Minnie & lots of conservation everywhere - then that drops demand so much that nat gas & such can be allocated for industry for a loooong time.

And cost rationing will make sure stupid & inefficient uses of nat gas are reduced if not eliminated.

I know I've told you before but I cut my teeth in chem engineering - huge ethanol & corn sweetener plants - we did mass & energy balances in our sleep. Mfg is a huge user of energy - especially nongreen - but if conservation & alt technologies are applied everywhere else that really does leave an awful lot of capacity for essential industrial uses which by their nature can't always go green.

The key is to get the consumer to conserve - that is still the biggest user - the rest follows from there.
Dryfly speaketh the truth. Not only is residential energy the 800lb gorilla but the least efficient. Transmission and overcapacity losses and peak generation loads are atrocious. PVs on my roof and thousands of others means the difference between regular generation and firing up the NatGas peak plants at huge costs and waste. The local Edison should be paying us to install PVs.
They don't pay off everywhere, but man do I agree.

If Congress had really wanted to deal with energy issues, it would have made more sense to pass laws forcing power cos to buyback at average monthly rate and favoring domestic alternate energy production with more tax breaks.

I followed some of the CA Sturm und Drang over the solar deal, and it seems to me that utilities are lobbying as hard as they can to try to restrict private power generation.

Dryfly, in some places more power production overall is needed. It's not the peak usage problem - it is more capacity for mfrg. Adding wind, etc, won't cut it because it is too variable.
Geeze, we should have been on
solar and natural gas as of twenty years ago at least.

What exactly are the components of primary and fabricated metal?

That doesn't bode well, because that sounds like foreigners are just mining the resources out of the US instead of buying our manufactured goods. Am I reading this correctly?
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