US: Factory Orders

Fri Feb 02 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 1.5% 0.3% to 2.5% 1.7% 1.3% 1.7%

Downward revisions to capital goods shipments offset to a degree the strong 1.7 percent headline gain for December factory orders. Shipments of nondefense capital goods excluding aircraft, which will be inputs into the second estimate for fourth-quarter GDP, are revised 2 tenths lower in December to a still solid 0.4 percent gain and 1 tenth lower for November to a 0.3 percent increase. This will pull down what was a solid showing for nonresidential fixed investment in last week's first estimate for fourth-quarter GDP.

Other data in today's report include a 1 tenth downward revision in December durable orders to a still very strong gain of 2.8 percent and an initial reading of plus 0.7 percent for nondurable orders led by petroleum and coal products.

Orders on the durables side are led once again by civilian aircraft but also include good showings for vehicles, primary metals, fabrications, and machinery. But orders for core capital goods, like shipments, are revised lower, down 0.6 percent in December and up only 0.1 percent in November both of which point to a slow start for 2018 business investment.

Nevertheless, today's report is consistent with a factory sector that, despite mixed signals like the capital goods data or the dip in manufacturing hours in this morning's employment report, is probably accelerating into the new year. This is underscored by year-on-year growth for durable orders which has been sloping higher, to 11.5 percent in December from 8.7 percent in November.

Market Consensus Before Announcement
A 2.9 percent rise in the durable goods report for December makes for a 1.5 percent consensus call for total factory orders which include nondurable goods. Strength in the durables report included vehicles and once again aircraft with weakness centered in a monthly decline 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.