US: Factory Orders

Tue Jan 06 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -0.6% -1.4% to 1.8% -0.7% -0.7% -0.7%

Factory orders contracted for the fourth straight month in November, down 0.7 percent with minus signs sweeping nearly all major categories. The component for durables orders fell 0.9 percent in the month, revised down from minus 0.7 percent in the initial reading posted prior to Christmas. The non-durable goods component fell 0.5 percent reflecting weakness for food and petroleum products.

Turning back to the durables side, transportation goods were especially weak, down 1.3 percent and reflecting a monthly swing lower for defense aircraft. Nondefense capital goods show one of the few gains for the month, but only just barely at plus 0.1 percent. This reading when excluding civilian aircraft, which is considered a core reading for the industrial economy, fell 0.5 percent for a third straight decline.

Other readings include a sizable 0.6 percent decline for total shipments that follows a 0.9 percent decline in October. Shipments for nondefense capital goods excluding aircraft fell 0.2 percent for a second straight decline in a reading that will weigh on forecasts for fourth-quarter business investment. The weakness in orders and shipments, however, has yet to lead to an unwanted build for inventories and, in another plus, growth in unfilled orders remains steady.

But this report is mostly weak throughout and makes November's surprising 1.1 percent surge in the manufacturing component of the industrial production report look like an outlier.

Market Consensus Before Announcement
Factory orders in October surprised somewhat on the downside but with weakness coming from nondurables-almost certainly from lower oil prices. Overall factory orders slipped 0.7 percent after declining 0.5 percent in September. The durables component rose 0.3 percent compared to the original estimate of 0.4 percent and versus a drop of 0.7 percent in September. Nondurables orders fell 1.5 percent in October, following a 0.2 percent dip the month before.

Factory orders represent the dollar level of new orders for both durable and nondurable goods. This report gives more complete information than the advance durable goods report which is released one or two weeks earlier in the month.

Investors want to keep their fingers on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth which is less likely to cause inflationary pressures. By tracking economic data like factory orders, investors will know what the economic backdrop is for these markets and their portfolios. The orders data show how busy factories will be in coming months as manufacturers work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in production. Shipments reveal current sales. Inventories give a handle on the strength of current and future production. All in all, this report tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.