The markets have been celebrating a rise in factory orders reported by the Commerce Department, which was corroborated by the ISM report. That showed a substantial rise in back orders, but also a worrisome jump in prices.
But something is fishy about the numbers. Private sector jobs grew only 64,000 in April. But here’s the kicker (emphasis added):
After adding in some 24,000 government jobs created in a typical month, the ADP report suggests nonfarm payrolls grew by about 90,000 in April, a bit lower than the 100,000 estimated by economists surveyed by MarketWatch.
Service-sector firms added about 106,000 jobs, while the goods-producing industries cut 42,000, including 20,000 in manufacturing. Goods-producing industries include manufacturing, mining and construction.
it is challenging to reconcile the message from the ISM manufacturing survey for April with other current economic data. Factory reports for April from Chicago, New York, Cincinnati, Milwaukee and Richmond show slowing momentum, while the report from Philadelphia suggested nearly unchanged conditions. Factory surveys from Kansas City and Detroit were the only two reports indicating an expansion in factory activity.
And we know that auto sales and home sales are tanking.
So, exactly what are we manufacturing more of, using fewer workers and with declining factory usage?
My guess is that all those new factory backorders are for excessively optimistic data.
Update: To further confuse the issue, initial jobless claims are down to 305,000 and the four week average is at 328,750. This is generally taken to mean a rise in employment. Still, the ADP report spoke of declining manufacturing employment, something one doesn’t expect if orders are pouring in.