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Manufacturing in the US, as measured by new orders received, ramped up further in May, with raging inflation being part but not all of the equation, and unfilled orders ticked up further, and the key inventory ratio of inventories-to-shipments – which eliminates the effects of inflation – held at the lowest levels since August 2019.

The impact of the rate hikes or any slowdown is not yet visible in the manufacturing data for May. But surveys of executives conducted in June and released last week as the Manufacturing PMIs hint at a first dip in orders in June from the fairly strong May.

New orders for manufactured goods in May rose by 1.6% from April, seasonally adjusted, to $543 billion, according to data from the Census Bureau today: orders for manufactured durable goods +0.8% to $267 billion; orders for manufactured nondurable goods +2.3% to $276 billion.

On a year-over-year basis, new orders for manufactured goods jumped by 14% in May, after a series of massive year-over-year increases for the past two years, with orders for manufactured durable goods increasing by 12.2%, and for manufactured nondurable goods by 18.9%.

Transportation equipment is the largest category of durable goods, with $82.8 billion in orders in May, not seasonally adjusted, up by 19.7% from a year ago. The vast majority of this sector is composed of cars and trucks, heavy trucks, buses, components, and trailers, which account for almost 70% of the sector. Aircraft (nondefense and defense combined) account for 18% of the total transportation orders. Ships and boats account for 3% of transportation orders.

Unfilled orders rose to $1.11 trillion in May, up by 7.3% from a year ago. All of this year-over year increase is likely accounted for by price increases:

Inventory levels in dollar terms are inflated by cost increases, and are not indicative of whether or not inventories are piling up – the rumored “inventory glut.” But the inventory-to-shipment ratio eliminates the factor of prices and price increases, and in May, the ratio remained unchanged from April at 1.47, the lowest since August 2019, according to the Census Bureau:

The impact of the rate hikes or any slowdown in demand is not yet visible in the manufacturing data for May.

But there are the surveys of manufacturing executives for June: Though the overall ISM Manufacturing PMI for June was in growth mode, the new orders index within it dipped to 49.2, from the fairly strong reading in May (55.1), with 50 being the dividing line between rising and falling orders on a month-to-month basis.

Spending is shifting from goods back to services. For months now, consumers have shifted from the mind-boggling pandemic-related spending boom on goods back to spending on services. Spending on discretionary services had collapsed during the pandemic, and it has been coming back, even as spending on goods dropped. Consumer spending on services accounts for over 60% of total consumer spending. And this shift is huge – even adjusted for inflation. Read…  Consumer Spending Shifting Back to Services from Stimulus-Binge on Goods. Inflation Eats into Incomes

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Discretionary services sounds kinda PG-13.

“Spending on discretionary services had collapsed during the pandemic, and it has been coming back, even as spending on goods dropped. Consumer spending on services accounts for over 60% of total consumer spending. And this shift is huge – even adjusted for inflation.”

Discretionary services include plane tickets, hotel bookings, sports and entertainment venues, discretionary medical services (cosmetic surgery, lots of dental stuff, non-emergency services, etc.), yoga lessons, gym memberships, hair cuts (but I’m not switching back)…

That Flo-Bee must do a good job!

I switched back to my long time barber. I missed the conversation and the huge TV (on sports continuously) in the shop.

I’ve been using a flowbee since sometime back in the last century. I have no idea what a haircut costs.

I’ve been doing my own dentistry since Covid, initially I couldn’t find a dentist and then learned on youtube how to remove wisdom teeth in a jiffy, or pull a problem molar.

We kept our gym memberships. We use the track and the equipment. And, occasionally if it is open and uncrowded, the pool. Both of us are retired so we can go at off-peak times.

We still are NOT participating in any exercise classes. Tai Chi or aerobics.

We go through, probably incorrectly, the 24 step Tai Chi moves we learned, at home.

We have started using resistance bands as suggested by one of our friends. Who is a personal trainer.

Will be interesting how well services hold up. Nearly impossible to hire surveyors around here. People coming out of retirement because it’s name your price. A lot has to do with in migration to NC which requires new construction of housing and infrastructure.

Same here in Hawaii for hiring anyone. I sold all my rental real estate because I couldn’t get anyone to show up to do repairs or maintenance, and I was willing to pay “whatever”. All my usual and reliable handypeople all said “sorry, I’m busy on other projects”. Please keep in mind that I NEVER negotiate on price, will always pay “whatever”, and always pay at end of day by Zelle. In my actual business, we put an add on Craigslist to hire assistants. We offer 1.5x what everyone else is working for since we only have part-time work, but we get zero response. All my colleagues have the same experience. Amazing that we are willing to pay whatever and still it doesn’t interest anyone.

I wonder if all the affordable housing for those workers got bought up for rentals, making it no longer desirable to continue their lives or career in your locale.

Maybe people can’t live off of a part-time job.

My guess is that part-timers don’t get any fringe benefits: no 401K; no leave; no health plan, etc. The market is telling you that your aren’t paying 1.5X the going rate and, yes, indeed, no one can support themselves on what you are offering to pay part-time.

As for handyman, yes they all got better jobs with more pay. “Whatever” paid sporadically with no guarantees isn’t enough to put food on the table.

Media reports indicate that at least some manufacturers are still complaining about supply chain issues, so I think we’re still in a period of those issues working themselves out. Not sure if we’ll see any significant volatility in the short term. Medium to long term, seems nearly certain that we’ll see inventories build that will put pressure on prices to either remain static or go down.

Coupled with whatever happens with oil/gas and the obvious wild-cards Russian war with UKR and Xi’s 2nd Cultural Revolution (Covid Ed.), I’m a bit of an optimist re inflation having peaked or peaking in the short term and going down in the medium to long term. Aside from housing, where the Fed has bloody hands, I don’t see them really being the driving force re our previous inflation. More COVID, geopolitical events, and fiscal policy — which also means they might be overcorrecting on rates in hindsight. Wouldn’t be the first time.

Another underlying driving force for inflation is a really long-term trend change. After 3-4 decades of decline, we’re finally starting to see a return (to historic norms) of workers’ compensation vs. capitalists’ profits.

More GDP flowing to wages is (IMO) a Good Thing, but those payments will initially drive higher demand, whereas the supply chains aren’t there to provide all those goods. In addition, the evidence of labor scarcity also implies constrained supply.

The problem of labor scarcity is demographic and generational, as well as geopolitical. It won’t be solved just by interest rate increases. After wiping out the zombie businesses and freeing up a chunk of labor and supply for higher priority (profitable) products and services, we may find that inflation returns despite higher interest rates…

Side note on inventories, I was reading yesterday that wholesalers are buying up way more stock than usual from large retailers, sometimes straight off the dock. One woman they interviewed said she’d just bought winter coats for pennies on the dollar. Obviously out of season but the dollar stores don’t care. Probably stuck on a container ship during the winter.

Later in the article they said that these discounters were handling large appliances- one of them said that was a first but again, they’ll sell anything if the price is right.

My guess is the rising dollar will destroy the current manufacturing numbers as time passes. But then again, maybe there are so few exports (beyond oil), that it doesn’t make much of a difference to the US economy.

Looks pretty bleak to me, as I really can’t point to any major improvement in life for most Americans or the global population. At the moment you’re less likely to get fired, but can’t make ends meet because of inflation. China, Europe and Japan all heading off a cliff, so I don’t see them buying much of our manufactured goods (Movies and Software maybe).

People have more Covid to look forward to, more wars and a climate crisis, while their leaders eat gourmet ice-cream and point fingers at each other. We also have a whole generation priced out of home ownership. Don’t see any of that spurring demand, and of course the rising dollar will likey obliterate the global economy.

> a whole generation priced out of home ownership

Some thought and expressed this in ’08, which is not even a generation ago. Plenty of puffed-up, greedy and over-optimistic folks were shown to the sidewalk.

I bought in a Fed hiking cycle in ’94, with an adjustable rate mortgage no less, and came out OK. I’ll be paid off soon.

We oldies will die forthwith and release these assets from our bony hands.

And the world has shown countless remarkable ways of not ending. Except of course, for every one of us pilgrims individually, eventually. Maybe it really is a go-round, though? Mathematically possible.

I think of buying a house as a long term place to live. (Not an investment). It limits increases in living expenses compared to renting. You will never see another rent increase. If you never sell, your heirs will only care about gains or losses in value.

Every generation has some difficulty purchasing but had some advantages.

Boomers/Gen-X. – High interest rates (13+%) made it difficult to qualify in the 1980s-1990s. However, the subsequent drop in rates during the 2000’s made the purchase much cheaper with refinancing. Many were not able to buy a house because they didn’t qualify. The Boomers that did buy and hold are doing well. Many have paid off their houses and will never pay someone else for a place to live again (except taxes).

Millennials. – Millennials were in their early 20’s to early thirties during the 2009-2014 housing crash. They had low house prices and low rates (which got lower). It was a great time to buy but many didn’t out of fear that the crash wasn’t over or they didn’t have a job. The Millennials that did buy (even at the peak in 2006) are doing well if they could hold on. If they purchased with a 15 year loan in 2006 and held, they have also paid off their loan.

Gen Z and late Millennials are feeling the same pain as the Boomers at the same age. High interest rates and higher house prices. They could buy now and gamble their wages will go up and rates will eventually drop so they can refi, or they can wait and see what happens during the next year.

People thought we were crazy when we paid as much as we did in 1987 for our first house. It turned out OK with refinancing and wage increases. It is paid off now. Some people think you are crazy if you buy now. If you can afford to purchase now and hold with a 15 year loan, it will not seem that crazy after 10 years. Just enjoy the house and don’t worry about any losses on paper. Don’t read any more Housing Bubble blogs.

Historically, if you can afford it now and can hold for the long term, it has worked out for all generations.

Making sure that you can hold on to the house for the long term seems to be the key.

Our advice that we give to our kids.

> I really can’t point to any major improvement in life for most Americans or the global population.

I can think of hundreds of moments in human history you would probably not trade, for your perch and prospects now.

> I really can’t point to any major improvement in life for most Americans or the global population.

What? Are you living under a rock?

There are all kinds of improvements, I’ll just mention one big one:

Medical advances in curing diseases and increasing life expectancy.

Re ” can’t point to any major improvement in life for most Americans or the global population.”

Look harder, using your high-index-of-refraction ultra-light prescription lenses (new in past 10-20 years), or your AI-enabled face-recognizing cell-phone camera (new in past 5 years), or ask your AI assistant what it thinks…

Less-toxic foods with less-polluting packaging.

Decent electric bikes and scooters for those who don’t want or need cars.

Computers doing more to help you, with less effort by you.

Peer-to-peer payments using Venmo and the like.

We survived COVID – now have more “veteran” population better able to handle adversity in the future.

It seems that everything the prices together. After the algorithms started buying stocks today in the afternoon, they similarly started buying crypto and bonds. It’s very strange to me, as these are supposed to be uncorrelated.

Algos doing straight pattern-recognition plays observed over tiny time frames, regardless of a theory of what is “supposed to be”? This might tease out some weird thing in sentiment that correlates across assets but hasn’t got a stated name or rationale.

Mfg are surging, but wall street send them down to buy at 50% discount.

The new orders graph is a good sign. A solid increase that’s NOT just a bounceback from the lockdown insanity. Especially in primary metals, an area we had mostly abandoned. Indicates the beginning of a healthy reshoring trend.

I think there is a big shake up in the economy regarding wages. The fortune 20 company I work for had a hiring freeze and no promotions unless absolutely necessary. We are told, due to losses, the promised raise is not happening. They do not have layoffs – instead we have a portfolio career where you are working three positions for the lowest paying one. With a promise if you stick with us – we will do what we can in the future. It is less then motivating. I don’t see any wage growth happening in my industry. I work in both IT and Finance. So this is a little insane.

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That’s what’s different this time: Stuff blows up because of leverage and cascades through the crypto space because everything’s interconnected. Unlike prior “crypto winters.”

Our property with a Walmart store has arguably declined 25% in value in the last six months. But cash-flow hasn’t changed.

Pent-up supply suddenly shows up – those vacant homes that no one was counting as vacant.

Raging inflation started mid-2021, but the ECB called it temporary. In June, it ranged from 6% to 22%!

But cryptos and DeFi created a big mess as hidden leverage is blowing up, and the mess spread to stocks.

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