US: Factory Orders

Wed Apr 04 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Factory Orders - M/M change 1.7% 1.1% to 2.2% 1.2% -1.4% -1.3%

The book on February's factory sector, the month before tariffs on metals hit, is now closed. Orders rose 1.2 percent but benefited from a jump in aircraft which, in January, skewed orders sharply lower. Excluding aircraft as well as other transportation equipment, orders managed only a 0.1 percent increase vs January's 0.4 percent rise.

Yet there is definitive strength in the February report as orders for core capital goods (nondefense ex-aircraft) surged 1.4 percent with shipments for this reading also up 1.4 percent. The latter is a direct input into GDP and will help the first-quarter showing for business investment.

Primary metals, where U.S. tariffs are targeted, were already in demand in February, rising 2.8 percent with related inventories already building at 0.5 percent. This will be a subcomponent to watch as tariff effects unfold and whether manufacturers are pre-buying metals in anticipation of higher prices ahead.

Other readings include another surprisingly modest build for unfilled orders, up only 0.2 percent following January's 0.3 percent decline. Total inventories rose a moderate 0.3 percent in the month with total shipments up 0.2 percent.

Despite some soft readings in this report, the overall order rise and especially the order rise for capital goods point to manufacturing momentum.

Market Consensus Before Announcement
The durable goods report for February showed impressive strength especially for capital goods orders. Total factory orders for February are expected to rise a very solid 1.7 percent and offset a 1.4 percent downswing in January that was skewed lower by aircraft orders.

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.