US: Factory Orders

Tue Nov 03 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -0.9% -2.0% to 0.0% -1.0% -1.7% -2.1%

New orders for the export-hit factory sector fell 1.0 percent in September for the 11th decline in 14 months with August revised 4 tenths lower to minus 2.1 percent. September orders for durable goods, initially posted in last week's advance report, are unrevised at minus 1.2 percent, held down in part by a downswing in civilian aircraft but nevertheless showing wide weakness. Orders for non-durable goods, pulled down by weakness for petroleum and coal products, fell 0.8 percent to extend a run of sizable declines going back to July. The factory sector has been struggling with weakness in the energy sector and especially weak foreign demand that for U.S. goods has been made weaker by the strength in the dollar.

Primary metals were down in the month as were both machinery and computers. Orders for core capital goods, despite the decline for machinery, were flat though shipments improved from an especially weak August. Industries showing gains for orders in the month include fabricated metals and electrical equipment, both getting a lift from what are strong gains in construction spending. Orders for vehicles were also up.

Outside of new orders, readings are negative with shipments down 0.4 percent for a third straight decline and with unfilled orders down 0.5 percent for a second straight decline. Declines in these readings, not to mention weakness in new orders, are not good for the sector's employment outlook. Inventories also declined, down 0.4 percent for a third straight decline.

With the factory sector in downturn, unwanted inventories are a heightened risk and manufacturers are keeping them in check, a factor that sharply held down third-quarter GDP growth and, unless orders pick up, may also hold down fourth-quarter GDP as well. The factory sector is struggling and is chief on the list of 2015 disappointments.

Market Consensus Before Announcement
Factory orders have been on a long string of declines and another is expected for September, and at a steep minus 0.9 percent. The forecast is based on an already released 1.2 percent decline in orders for durable goods where core readings all showed weakness. Weakness in exports has been tilting the factory sector into 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.