Highlighting the disparity between government statistics and the real world, orders for durable goods fell an estimated 2.8% in May, led by reductions in the orders for aircraft, metals and machinery. It is speculated that some of the decline is due to a productivity spike in April which has temporarily raised inventories in an economy which is entering a cooling phase. Adding to the statistical decline is a reduction in steel orders which had surged through the first quarter as manufacturing interests bolstered their inventories of raw materials both domestically and abroad.
Economists are still forecasting higher levels of corporate investment and from what I see, that's true. Companies are looking to renew and refine their interior operations and are aggressively seeking improvements to revenue flow. The investments to that end however are falling into the categories of infrastructure, R& D and sales rather than increased output capacity, leading to reductions in workforce, not increases in production machinery. Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts stated, "Capital spending is not moving forward with the strength we had hoped.''
Projections going forward aren't looking exceptionally solid either. Bloomberg.com reports the following indicators: "Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent in May and shipments of those items, used in calculating gross domestic product, fell 0.2 percent. Demand for machinery fell 1.6 percent in May and bookings for metals dropped 3.6 percent. Inventories of all durable goods rose 0.2 percent. while manufacturers had a 1.46 month's supply of durable goods on hand at the current sales pace in May, the same as in April."
I personally predict that things are going to noticeably tighten up in the manufacturing sector through the next two quarters. Those companies manufacturing non-specialized goods will continue to sell off inventories while maintaining productivity at levels specified to simply avoid falling short of product.
Lastly, in pursuit of possible indications of at what level manufacturers are continuing to order, produce and ship, I myself will keep watching the railroads for load volumes.
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