Factory Orders Sink

Factory orders sank a very sharp 2.9 percent in December after falling a sizable and downwardly revised 0.7 percent in November. Orders for durable goods fell 5.0 percent in December (revised from minus 5.1 percent in last week's advance release for this component) while the first reading for non-durable goods orders is down 0.8 percent reflecting declines for petroleum and coal.

Headline swings for order data are the norm but details inside the report point straight at weakness. Core orders for capital goods fell a very steep 4.3 percent in the month reflecting wide declines for machinery especially mining & oil field machinery. Computers including communications equipment also show wide declines.

Turning to other readings, shipments fell a very steep 1.4 percent with shipments for core capital goods rising only fractionally following steep declines in both November and October. Unfilled orders fell 0.5 percent in December, which is another warning sign, while inventories rose 0.2 percent in what definitely looks to be an unwanted build given the declines in orders and shipments.

Inventories, where the rise lifts the inventory-to-shipment ratio to a much heavier 1.38 from 1.35, look to be a major headwind for the first quarter, cutting into factory output and also employment. The declines for capital goods point to declining ambitions in business plans. Weak global demand and falling demand from the energy sector remain major negatives for the nation's factory sector.

Recent History Of This Indicator:
Pulled down by weak exports and weak demand for energy equipment, the factory sector has been a weak link in the economy. And factory orders are expected to fall sharply in December with the Econoday consensus calling for minus 2.8 percent. This report in November was decidedly weak, reversing strength in October and including important setbacks for capital goods.