|Factory Orders - M/M change||-1.3%||-2.4% to 1.0%||-1.7%||0.4%||0.2%|
The export-hit factory sector is in the headlines with orders for August down 1.7 percent and under the Econoday consensus for minus 1.3 percent. Orders for non-durable goods, pulled down by price weakness for petroleum and coal products, fell 1.1 percent on top of July's 1.4 percent decline. Orders for durable goods, initially released last week, are revised down to minus 2.3 percent vs an initial decline of 2.0 percent. And swings in aircraft are not distorting the picture as the ex-transportation reading is down 0.8 percent in August following July's 0.7 percent decline.
Capital goods data show a step back from two months of prior strength. Orders for core capital goods (nondefense ex-aircraft) fell 0.8 percent in August with shipments for this reading down 0.4 percent.
Motor vehicle orders fell 0.4 percent but are very likely to rebound in the next report given the sharp gains underway for vehicle sales. Pluses include another gain, despite the capital goods weakness, for machinery orders and also another gain for energy equipment which has been bouncing back. Furniture has also been strong.
But the bulk of today's report shows weakness including a 0.2 percent decline for unfilled orders and another dip for total shipments, down a steep 0.7 percent following July's 0.2 percent decline. Inventories fell 0.3 percent but were outmatched by the decline in shipments with the inventory-to-shipment ratio moving one notch higher to 1.35.
Unwanted inventories are a question right now, especially given what looks to have been a very poor September for the factory sector. Global weakening, as underscored by the FOMC, is a wildcard for the economy and the nation's factories are at the front line.
Market Consensus Before Announcement
A monthly downswing in aircraft orders pulled down the durable goods report in August and is expected to pull down factory orders as well, by a consensus 1.3 percent. Factory orders have been struggling all year, pulled down by weak exports and moving steadily into year-on-year contraction.
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.