A Funny Thing Happened on the Way to the Economy

Finally, some good news about the economy. I'm not talking about he DOW. It did jump 500 points Monday and only dropped about 100 yesterday, and while this is an upward trend, it still demonstrates the volatility of an unstable market.

No, I'm talking about new orders for manufactured goods, which were up in February by 3.4% after six consecutive monthly decreases, the most recent of which was a 7.3% decrease in January. Adjusted to exclude transportation, it was a 3.9% increase; adjusted to exclude defense it was 1.7%.

What does this mean? It means that car makers have taken a hit (since their exclusion accounts for a .5% increase), but other manufactured goods providers have sold through their dead inventory and are starting to make purchases again.

The economy is based on movement. Let's say you sell widgets and you consistently sell 100 a month. Let's say it takes you 6 months to get them in from when you order them. Then an economic slump starts in January and you only sell 90 that month. That means that you have 110 in inventory and only order 90 for July. Then you sell 90 in February, but you still get 100 in from the order you placed six months before, so now you've got 120 in inventory so you only order 80 for August. Then yous sell 90 in March but receive 100. Etc, etc, etc. After a while you hit an equilibrium where you're consistently selling and receiving 90 per month, but until then, your orders for new stock are actually worse than your sales for existing stock.

In short, manufacturing gets hit extra hard early on because sellers have excess inventory laying around, and that may be finally coming to an end. Now the long-term behavior of the economy reflects the short-term situation a little better. To put it another way, now that we've stopped bleeding out, we can get down to the business of healing up.

]{p