US: Factory Orders

Tue Aug 04 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 1.7% 0.7% to 2.5% 1.8% -1.0% -1.1%

Factory orders rose nearly as expected in June, up 1.8 percent for only the second gain in the last 11 months. The durable goods component, initially released last week, is unrevised at plus 3.4 percent in a gain distorted by aircraft orders but one that does reflect a pop higher for capital goods. The non-durables component, data released with today's report, rose 0.4 percent on order gains for oil and chemicals.

Orders for civilian aircraft jumped 65 percent in the month following, in routine up-and-down fashion for this component, a 32 percent downswing in May. Industries reporting respectable gains include 0.5 percent for furniture and 0.6 percent for motor vehicles as well as a 1.5 percent gain for machinery. Orders for energy equipment bounced back 5.5 percent after sinking 25 percent in May. Year-on-year, energy equipment is down 51 percent.

Looking at totals again, shipments rose a very solid 0.5 percent with shipments of core capital goods up 0.3 percent. The latter, which is a key reading that excludes aircraft, isn't spectacular but is still a solid gain for business investment. Unfilled orders, which have been in contraction most of the year, were unchanged in June. Inventories rose 0.6 percent in a build that falls in line with shipments, keeping the inventory-to-shipments ratio at a manageable 1.35.

Today's report offers rare good news for a factory sector that, due to weak exports and the collapse in oil & gas equipment, has been struggling to stay above water for the last year.

Market Consensus Before Announcement
Boosted by the prior release of an aircraft-driven 3.4 percent gain in the durables component, factory orders are expected to rise 1.7 percent in June. This would be only the second gain over the last full year for factory orders which have been pulled down by falling demand for oil & gas equipment and generally weak export markets. Aircraft orders have been playing unusual havoc with the data in recent months which puts special emphasis on the ex-transportation reading.

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.