US: Factory Orders

Thu Dec 03 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 1.4% 0.5% to 1.8% 1.5% -1.0% -0.8%

Factory orders bounced sharply higher in October and, together with the bounce higher for manufacturing in the industrial production report, confirm what was a very solid month for the sector. Factory orders rose 1.5 percent in the month led by a 2.9 percent surge in durable goods orders (revised 1 tenth lower from last week's advance release). This gain offsets a no change result for non-durable goods orders.

Excluding transportation, and orders tied to the biennial Dubai airshow, new orders rose a less exciting 0.2 percent. But indications from core capital goods are very strong with new orders surging 1.3 percent on top of a 0.5 percent orders gain in September. Turning to capital goods industries, new orders for machinery jumped 1.2 percent with computer orders up 5.9 percent.

A negative in the report is a surprising 2.0 percent decline for vehicle orders, a disappointment that may very well be reversed in coming months based on the sustained and unusual strength of vehicle sales.

Looking at other readings, total shipments fell 0.5 percent in October which is not a good start to the fourth quarter with core capital goods shipments also down 0.5 percent. But future shipments are certain to benefit from October's orders gain. Inventories, which are widely seen as too high, did dip 0.1 percent but relative to shipments could do no more than hold steady at a ratio of 1.35. Unfilled orders are positive, ending two months of decline with a 0.3 percent gain.

Given that the factory sector has been in decline all year, the order data in this report are encouraging and should help offset concern from this week's sub-50 reading in the ISM manufacturing report.

Market Consensus Before Announcement
On back of a 3.0 percent jump in durable goods orders, factory orders for October are expected to jump 1.4 percent in a gain that would end two months of frustrating contraction. Details in the durable goods report showed particular strength for core capital goods orders which in turn points to improvement in business sentiment. October's factory orders report will include initial data on nondurable goods where month-to-month price changes for commodities and fuel can make for wide swings.

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.