Let’s Get This Over With: Factory Orders More Toward Finality

Factory orders declined for the fourteenth consecutive month. At -4.3%, the year-over-year drop wasn’t huge but we are now into comparing consecutive yearly contractions. In other words, factory orders in December 2015 were 4.3% less than December 2014 which were 2.4% less than December 2013. It isn’t so much the magnitude as the time now in that consistency.

In seasonally-adjusted terms, however, December was a big drop, nearly 3%, which brought the level backward to equivalent with the middle of 2011. If a recession is a prolonged period of wide scale interruption and decline, US factory activity clearly fits the definition already.

The entire contraction for factory orders, both down and up, in the Great Recession was 14 months; the dot-com recession was slightly longer in production, with factory orders falling for 16 months straight and 18 out of 19 at the longest. The problem with our current recession is that there is no end in sight even after 14 months. With the large drop in seasonally-adjusted sales for December, the advance figure on inventories was contrarily positive meaning that the sales to inventory gap only widened further; a lot further.

The biggest discrepancy in terms of inventory and sales was transportation equipment, where inventories rose 1.3%. Sales in that segment, however, plummeted by 12.6%! With transportation, including autos, a major pillar of even this awkward and uneven recovery so massively out of balance, that indicates only more and greater production adjustments ahead (these figures are for the month of December).

Thus, the real worry is how businesses (and then consumers) will respond to 14 months of recessionary circumstances that accomplished so very little, unlike the prior periods of declared recessions. I am positive we have seen nothing like this before where recession actually shows up before the real recession hits. It makes analysis and interpretation quite difficult but not so much that common sense cannot apply. That is why, I believe, asset markets have surrendered to outright nervousness interspersed with liquidations, as the overall fundamental baseline pierces only downward. The lower we sink in the economy, with manufacturing and industry leading in that direction, the worse it seems possible when at some point still in the future the whole process really starts.