Keeping in line with chipper data releases in the manufacturing sector, the U.S. Census Bureau reported last week that manufacturing inventories, as well as overall business inventories, grew in February after many months of decline. (Other recent good news for the manufacturing sector can be found in the March IP report.) In February, manufacturing inventories were up from $495.7 million to $498.3 million, or 0.5%, for the United States.
For the previous several recessions, manufacturing inventories bottomed out just after the National Bureau of Economic Research (NBER) declared the end of the recession, with small monthly gains coming early in the recovery stage. An increase in manufacturing inventories for February suggests that suppliers may be ready to start restocking shelves and hints at a brighter overall economic picture.
The National Institute for Supply Management's Purchasing Manager's Index (PMI) provides some evidence of manufacturing inventory growth in March. Last month, the national PMI reflected growth in the inventories index after 46 months of liquidation.
Regional indicators also pointed to increases in manufacturing inventories for February. The Kennesaw State University PMI, which reflects manufacturing activity in the Southeast, revealed a sharp jump of 18 index points in the inventory component, putting it into the "expansion" range of the index. Though February's 18 point spike in the Southeast inventory component was dampened slightly in March with a 1.4 index point dip, the index still hovers around the benchmark for growth in inventories and remains above the average trend of the previous recession. This goes hand-in-hand with an increasing number of manufacturers across the Southeast who are increasingly more optimistic in their production outlooks.
The New York Fed's Empire State Manufacturing Survey, a leading manufacturing indicator, has also reflected gains in manufacturer's inventory levels. In March, the inventory component turned positive for the first time in more than a year. The trend is growing stronger in April: Last week's Empire State Manufacturing Survey, reflecting April data, shows the inventory component at a historical high.
The next U.S. Census Bureau release reflecting March inventories is due on May 14, while we'll get an update on Southeastern inventories for April from the Kennesaw State PMI release, expected May 5.
By Mark Carter, an economic analyst in the Atlanta Fed's research department