Since Boeing’s troubles with the 737 MAX began in early 2019, manufacturers’ inventories of nondefense aircraft and parts have steadily risen.
Agence France-Presse/Getty ImagesLike the rest of the economy, the U.S. manufacturing sector seems to have hit bottom in April. But the aggregate numbers obscure the interesting story.
After plunging 32% between February and April, new orders of durable goods jumped 16% in May. Shipments rose only 4% over the month, but they also fell somewhat less during the February-April period (23%). At the same time, inventories of unsold goods have been flat after jumping sharply in March, which means manufacturers may have to ramp up production soon to meet rising consumer demand.
Here is where things get interesting: Most of the volatility in durable goods manufacturing has come from two sectors—nondefense aircraft and parts and motor vehicles and parts. Before the virus, these two sectors accounted for less than 30% of the value of new orders and shipments of durable goods by American manufacturers. But they bore the brunt of the collapse in demand and have driven the bulk of what remains a modest recovery.
Civilian aerospace and autos were responsible for 70% of the total drop in new orders between February and April, and for 74% of the decline in shipments. The two major transportation equipment industries saw new orders plunge by 80% between February and April thanks to collapsing demand for new cars and mass cancellations of orders for new planes. Shipments fell by 61%, in part because of the time lag between when aircraft are ordered and when they are delivered, but the drop was still massive.
For comparison, shipments of durable goods excluding motor vehicles and parts and nondefense aircraft and parts fell only 8% between April and May. That’s not good, but it’s slightly less bad than the 9% decline between August 2014 and July 2016 and far less bad than the 26% decline between June 2008 and May 2009.
Since the trough in April, shipments of motor vehicles and parts have jumped 27%, while shipments of all other durable goods have increased only by 1%. (Shipments of aircraft and parts continued to fall, but from a very low base.)
The net effect is that 71% of the total increase in shipments of durable goods can be attributed just to the partial rebound in motor vehicles. For perspective, the sector is still producing at about half of where it was.
The picture for new orders is even more extreme, because airlines stopped canceling their orders of planes in May, even if the (positive) dollar value of new orders was still incredibly low. The result is that new orders for autos and aerospace together jumped 131% in May, compared with 6% for all other durable goods.
Finally, consider inventories. Ever since Boeing’s troubles with the 737 MAX began in early 2019, manufacturers’ inventories of nondefense aircraft and parts have steadily risen and are now 24% higher than they were in February 2019. The inventory build seemed to have peaked at the end of last year but began rising again with the coronavirus cancellations. The situation in aerospace has been masking a trend in the rest of the manufacturing sector of flat or falling inventories since the beginning of 2019.
Manufacturers outside of transportation responded to the generalized collapse in demand by holding slightly more product in inventory, which they have since run down. The question is whether they will try to run down their inventories further to bring the inventory/sales ratio back to normal, or whether demand will rise fast enough for America’s producers to return to where they were.
Write to Matthew C. Klein at matthew.klein@barrons.com
"cycle" - Google News
June 26, 2020 at 03:25AM
https://ift.tt/2NuniNB
Autos and Aerospace Are Driving the Coronavirus Manufacturing Cycle - Barron's
"cycle" - Google News
https://ift.tt/32MWqxP
https://ift.tt/3b0YXrX
Bagikan Berita Ini
0 Response to "Autos and Aerospace Are Driving the Coronavirus Manufacturing Cycle - Barron's"
Post a Comment