US: Factory Orders

September 5, 2017 09:00 CDT

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change -3.2% -3.8% to -0.2% -3.3% 3.0% 3.2%

There's really only good news in the July factory orders report where the headline, at minus 3.3 percent, reflects a slowing in what were strong prior gains for aircraft orders. The best news is a 6 tenths upward revision to core capital goods orders (nondefense ex-air) to a 1.0 percent gain and a 2 tenths upward revision to core shipments, now at 1.2 percent. These numbers point to accelerating strength for third-quarter business investment.

Total shipments rose a moderate 0.3 percent in the month with inventories up only 0.2 percent. This takes the inventory-to-shipments ratio to a more lean and positive 1.37 from 1.38. Unfilled orders are not a positive, falling 0.3 percent after however a giant 1.3 percent build in June.

The split between the report's two main components shows a 0.4 percent gain for nondurable goods -- the new data in today's report where strength is tied to petroleum and coal -- and a 6.8 percent dip for durable orders which is unchanged from last week's advance report for this component. The total ex-transportation gain is a strong 0.5 percent vs June's 0.1 percent increase.

The core strength was posted despite weakness at the heart of capital goods and that's machinery where orders fell 0.9 percent though shipments of machinery did rise 0.2 percent. Today's factory orders report closes the book, one that includes a 0.1 percent decline in the manufacturing component of the industrial production report, on what was a mixed month for the factory sector.

Market Consensus Before Announcement
Factory orders are expected to fall 3.2 percent in July though most underlying data are likely to show strength based on the advance release of the durables side of the report. There was one mystery, however, on the durables side and that was strength in capital goods orders even though the machinery component, which is at the heart of capital goods, fell sharply.

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.