US: Factory Orders

Thu Apr 02 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 0.0% -1.3% to 1.0% 0.2% -0.2% -0.7%

After 6 straight declines, factory orders finally moved to the plus column, up 0.2 percent in a February gain, however, that is tied largely to an upward price swing for petroleum and coal products. Another mitigating factor is a sharp downward revision to January orders, to minus 0.7 percent from minus 0.2 percent.

Durable goods show broad weakness with orders down 1.4 percent in data initially posted last week. Most readings show significant declines and underscore this morning's export dip in the international trade report and the Fed's concerns over weak export markets and the negative effects of the strong dollar. Core capital goods are down 1.1 percent in the month for a 6th straight decline in a reading that points to a lack of business confidence and business investment.

Total shipments bounced back 0.7 percent in February but follow a 2.3 percent plunge in January and which holds down factory contribution to first-quarter GDP. A clear negative is a 3rd straight decline for unfilled orders, down 0.5 percent for what is now the weakest string since way back in the recession days of late 2009. A lack of unfilled orders will not encourage manufacturers to add to their workforces. One positive is inventories which are less heavy, up only 0.1 percent and bringing down the inventory-to-shipments ratio to 1.35 from January's recovery high of 1.36.

The main positive in today's report is the non-durables component where a 1.8 percent gain ends 7 straight declines, declines all tied to oil-price effects. But the weakness in durables, tied to foreign demand, is becoming a significant negative for the economic outlook.

Market Consensus Before Announcement
Factory orders fell for a 6th straight month in January. The decline was centered in non-durables which, in price effects tied to energy, fell 3.1 percent in the month, offsetting an unrevised 2.8 percent gain for durables (initial durables data released last week). The rise in durables reflected a swing higher in the always volatile transportation component which, reflecting a big gain for commercial aircraft, jumped 9.7 percent.

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.