Monday, March 16, 2009

Where NOT To Look For Reasons For The "Rally"

Manufacturing downturn continues apace

Broad-based declines in output; new lows in utilization

Industrial production fell 1.4% M/M in February for a result below consensus forecasts. Auto output partially rebounded 10.2% M/M as some factories came back on-line after extended shutdowns in January. This added 0.5 ppts to overall manufacturing production over the month, which still managed to fall 0.7% M/M with declines across a broad array of industries.
Overall capacity utilization dropped from 72% in January to 70.9% in February, matching the all-time low first recorded during the depths of the 1980’s recession. Utilization in the manufacturing sector fell to a new historic low including a stilldepressed reading in the auto sector. Altogether, these readings are signs of growing slack throughout the economy that are deflationary in nature.

Further cutbacks necessary

Declines were seen in consumer goods, tech equipment, construction materials and anything auto related (metals, textiles, rubber). With the persistent downturn in housing, consumer spending, capital investment and auto manufacturibbng, we anticipate further cutbacks will be necessary going forward. Further, manufacturers continue to grapple with excess inventories as reflected in the 12-year high inventory-to-sales (I/S) ratio given sharper than expected declines in sales – in order to restore balance, orders and production will continue to head lower. The record low in today’s NY Empire survey for March attests to this ongoing downturn.

(hat tip BofA) Sphere: Related Content
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