US: Factory Orders

Tue Jun 02 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -0.1% -0.6% to 1.5% -0.4% 2.1% 2.2%

Factory orders fell 0.4 percent in April for the 8th decline in 9 months, a depressing streak interrupted only by March's revised gain of 2.2 percent, a gain inflated by a monthly swing higher for civilian aircraft. There are significant downward revisions to the durable goods side of the report that was first published last week, with durables orders now down 1.0 percent vs an initial decline of 0.5 percent. Capital goods in that report looked strong, but not with today's revision with orders for non-defense capital goods excluding aircraft sinking 0.3 percent vs an initial and very strong gain of 1.0 percent.

Ex-transportation, orders are unchanged, well down from the 0.5 percent gain in the durable goods report. Nondurable goods are a positive offset in today's report, up 0.2 percent and reflecting strength for chemical products.

Outside of new orders, data show no change for shipments and a 0.1 percent dip for unfilled orders, both very weak. The lack of punch is putting pressure on inventory levels where the inventory-to-shipments ratio rose to 1.35 from 1.34 in March.

The downward revision to core capital goods orders is a setback, pointing to much less business optimism than first reported. The factory sector did not get any lift at all coming out of the first quarter, reflecting weak exports and trouble in the energy sector. Manufacturing employment has understandably been very soft with the next update part of Friday's employment report.

Market Consensus Before Announcement
A monthly downswing in aircraft orders is expected to pull total factory orders into the negative column in April, but just barely at minus 0.1 percent. Orders had been in a deep downward slope until life started to appear in March, specifically life in the capital goods sector. The durables component has already been reported for April, at minus 0.5 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.