US: Factory Orders

Wed Jan 06 09:00:00 CST 2016

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -0.2% -0.9% to 0.6% -0.2% 1.5% 1.3%

Flat is a good description of the nation's factory sector as factory orders slipped 0.2 percent in November, making October's revised 1.3 percent gain look like a rare outlier. Durable goods orders were unchanged in the month while orders for non-durable goods fell 0.4 percent on price weakness for petroleum and coal.

Capital goods data, unfortunately, are mostly weak including a 0.3 percent decline for core orders. Shipments of core capital goods fell 0.6 percent in November and follow October's 1.0 percent decline in readings that will pull down the business investment component of the fourth-quarter GDP report.

Outside of orders, total shipments edged 0.2 percent higher to end a string of declines that go all the way back to July. Inventories also offer good news, falling 0.3 percent and bringing down the inventory-to-shipment ratio to a less heavy 1.35 vs October's 1.36. Unfilled orders are another positive, rising 0.2 percent following a 0.3 percent gain in October.

The factory sector is not exactly robust, the result of weak demand for U.S. exports and also weakness in the domestic energy sector reflected in this report by a 13.6 percent monthly plunge in orders for mining & oil field machinery. But the nation's economy is not narrowly focused on the factory sector, evidenced by healthy readings in today's ISM non-manufacturing report.

Market Consensus Before Announcement
The nation's trade deficit is expected to hold roughly steady at $44.4 billion in November. Weak global demand has been hurting exports while imports, despite strength in the dollar, have also been slipping in what may be a sign of slowing domestic demand. Last week's advanced data on November goods showed a narrowing in the deficit to $60.5 billion from $63.0 billion.

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.