This morning’s advance report on April manufacturing new orders, sales, and inventories was a pretty notable disappointment. The advance report only provides data on durable goods industries, which are revised at a two week lag when numbers for nondurable industries are added too. In addition to missing expected MoM changes (which were already pretty modest), the report saw downgrades to March as well. We tend to be careful about reading too much into MoM numbers in the report due to its volatility and high level of revisions. In the chart below we show the rolling 3 month average for durable goods orders and shipments relative to the prior 3 months’ average level, annualized. As shown, shipments are really diving, while new orders are of course falling too.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

One indicator within the report that gets a lot of attention is the “core capex” proxy. This number tracks sales (shipments) of non-defense capital goods, which is a good proxy for how much businesses are spending on equipment capital expenditures. As shown, aircraft shipments have slowed sharply, changing things from bad to worse relative to ex-aircraft numbers. Those are still growing, but relatively slowly.

We also like to strip out the most volatile components of durable goods. These aren’t capital goods only (like the above series), but we do strip out the most volatile categories of durables. As shown, this measure’s orders number is now down 2.2% annualized on a 3m/3m basis, the lowest since 2016, and shipments (which are included in GDP calculations, unlike new orders) are only barely positive.

Finally, and arguably most concerning, is that over the last few months inventories have started to pile up rapidly. As shown in the chart below, inventory-sales ratios have been climbing for some time, but the uptick has been especially dramatic in the last 2 to 3 months after revisions released today. Both are now firmly above the 2010-Current average for these numbers and represent excess production relative to demand; that’s a bad sign for the outlook in the manufacturing sector.

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