US: Factory Orders

January 6, 2017 09:00 CST

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -2.5% -3.6% to -1.9% -2.4% 2.7% 2.8%

Factory orders fell 2.4 percent in November but were actually up 0.1 percent when excluding transportation equipment and a 94 percent monthly downswing in commercial aircraft orders. And an important strength in the report is a 0.9 percent rise in orders for core capital goods (nondefense ex-aircraft), a second straight significant gain that points to improvement in business investment.

Factory inventories rose 0.2 percent in the month which, though keeping the sector's inventory-to-shipment ratio unchanged at 1.34, will add to the increase in next Friday's business inventories report which will include sharp November builds from the wholesale and retail sectors.

Factory shipments edged 0.1 percent lower in November with shipments of core capital goods, in another positive for business investment, up 0.2 percent. Unfilled factory orders, aside from an unusual 0.8 percent rise in October, have been very soft with November down 0.1 percent.

Monthly swings in aircraft aside, the factory sector appears to have ticked higher going into year-end, underscored by this morning's surprising 17,000 rise in factory payrolls. Among other details in today's report, the split between the report's two main components shows a 0.2 percent dip for nondurable goods and a 4.5 percent decline for durable orders (1 tenth lower than last week's advance report on this component).

Market Consensus Before Announcement
Factory orders for October are expected to fall 2.5 percent in line with a sharp decline in the month's advance durable goods orders that is expected to be offset by nondurable goods. Much of the weakness in the durables report was tied to monthly swings for commercial aircraft orders which masked strength in defense aircraft and more importantly for core capital goods orders (nondefense ex-aircraft).

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.