Latest Economic Data Offers Little Comfort

New claims for jobless benefits jumped again last week.

Initial claims for the week were up to 626,000 for the week ending January 31. The four week moving average which is subject to much less noise also jumped 39,000 to 582,500. In terms of raw numbers, this puts us at 1982 sort of reporting levels. Remember, however, that there’s an apples and oranges element to that comparison. The total population of the country and the labor force was much smaller at that time. The unemployment rate which comes out tomorrow should give more perspective.

Productivity jumped a surprising 3.2%. As I’ve written before, this is one of the untold good stories of the last few years. The economy has a lot of underlying strength which should serve it well as demand picks up. No doubt that some of the jump was due to layoffs. The least productive elements are usually the first to be cut so one would expect that factor goosed the numbers a bit. Here is a good graph from Jake at EconomPic Data that shows the movement of the various components:

Factory orders also showed considerable weakness. Here is the entire set of data from the WSJ.

Orders for manufactured goods decreased 3.9%, following a downwardly revised 6.5% drop in November, the Commerce Department said Thursday. Originally, factory orders were seen falling 4.6% in November.

Economists had forecast December factory goods orders slipping by 3.4%.

For the entire year, factory orders rose 0.4%, after rising 1.9% in 2007.

Demand for durable goods fell a revised 3.0% in December. Durables are expensive goods made to last at least three years. A week ago, Commerce had estimated durables in December sliding 2.6%.

Non-durable goods factory orders decreased 4.8%, after sliding by 8.7% in November. Petroleum is a non-durable, and the huge drop in oil prices since July’s peak likely was behind the repeated declines in orders. Lower prices, in turn, lower the value of orders.

But reduced demand amid a deepening recession is also causing orders to fall. Non-defense capital goods orders excluding aircraft decreased 3.2%, after rising by 1.1% in November. Those bookings are seen as a yardstick for capital spending by businesses.

The decrease in overall December factory orders was the fifth straight drop. Unfilled orders, a sign of future demand, were 1.4% lower in December — the biggest drop since 1.5% during September 2002.

Another report on the factory sector released this week, the Institute for Supply Management’s index of manufacturing activity, showed U.S. manufacturing contracted in January, albeit at a slower pace. The ISM report said the private research group’s index for factory activity stood at 35.6, from December’s 32.9. Readings under 50 indicate contracting activity. The data showed inventories were high, indicating production cuts in the future.

Thursday’s factory orders data had inventories in December plunging, down 1.4%. That’s the largest decline since a 1.4% drop in December 2001. Rising inventories are a bad sign, suggesting companies have been burdened by unwanted excess as demand slows. Excess inventory will have to be worked off down the road. Production cuts can translate to layoffs and soften the economy even more. Within the formula for gauging the economy’s performance, falling inventories are calculated as a deduction.

Orders for factory goods made in the transportation sector decreased 0.2%, after falling 9.9% in November. Non-military aircraft and parts orders plunged 43.8%, after falling by 46.2% in November. Defense aircraft and parts orders increased 16.3%, after sliding by 7.0% in November. Ships and boats increased 4.5%, after falling by 3.5% in November. Orders for motor vehicle bodies and parts decreased 5.7%, after falling by 2.0% in November.

Excluding transportation orders, overall factory orders decreased 4.4%, after falling by 6.0% in November.

Capital goods orders fell 1.3%, after falling by 3.7% in November.

Defense capital-goods orders rose 33.8%, after rising by 8.6% in November. Without defense orders, overall factory orders fell 5.0%, after sliding by 6.6% in November. Defense capital goods industries include, among others, communications equipment, aircraft and missiles.

Demand for all non-defense capital goods — business equipment meant to last 10 years or more — fell 6.3%, after falling by 5.3% in November.

Consumer-goods orders decreased 5.4%, with consumer durable goods orders falling 4.8% and consumer non-durables down 5.5%.

Orders decreased in December by 7.1% for primary metals, 6.5% for computers and electronic products, 4.1% for fabricated metals, and 5.7% for machinery. Orders rose 8.5% for electrical equipment

The report showed December factory shipments decreased 2.9%.

There isn’t much good in those numbers except for the fact that inventories are not increasing. There have been reports this month that inventories have undergone further reductions so we may be nearing a trough, however temporary, in the decline of factory orders.

One of these days there is going to be a big ray of sunshine bursting through. Not today, though.

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