US: Factory Orders

Fri Jan 05 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 1.1% 0.6% to 1.5% 1.3% -0.1% 0.4%

November's factory orders report closes the book on what, despite a 1.3 percent headline jump, was not a uniformly strong month for manufacturing.

The split between the report's two main components shows a very sizable 1.4 percent gain for nondurable goods -- the new data in today's report reflecting strong demand and higher prices for petroleum and chemicals -- and a 1.3 percent rise for durable orders which is unchanged from the advance report for this component and reflects aircraft gains from November's Dubai Air Show.

Now the soft points. Unfilled factory orders remain stubbornly flat, up only 0.1 percent the last two months. And readings on capital goods, though positive in recent data, are in the negative column. Orders for core capital goods (nondefense ex-aircraft) fell 0.2 percent in November which represents a 1 tenth downgrade from the advance reading. And shipments of core capital goods, which will be inputs into fourth-quarter business investment, fell 0.1 percent which is a 4 tenths downgrade.

But still there is much more strength than weakness in the report led by a 14.7 percent jump in civilian aircraft orders, a 1.1 percent gain for vehicle orders, a 0.9 percent gain for primary metals and a 1.6 percent increase for furniture orders which is a reminder of the strength underway in the housing sector.

Total orders as well as payroll growth in manufacturing have been picking up and though capital goods took a pause in November, the factory sector is on the move, evidenced by a very strong 1.2 percent rise in the month's total shipments. Watch mid-month for the industrial production report and the first definitive indication on December's factory activity.

Market Consensus Before Announcement
A jump in aircraft orders fueled a 1.3 percent rise in the durable goods report for November and makes for a 1.1 percent consensus call for total factory orders. But outside of aircraft, durable orders were flat in November and included softness in capital goods data.

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.