Factory Orders Rise In January

Factory orders rose a strong 1.6 percent in January as wide strength in durable goods, where orders rose 4.7 percent, was offset by a energy-related weakness in orders for non-durable goods which extended a long series of declines at minus 1.4 percent.

Core capital goods, boosted by orders for machinery, fabricated metals, and computers, are a key positive in the report, up 3.4 percent to nearly offset a 3.5 percent decline in December. This nation is a heavy exporter of capital goods and the gains in this report point to improvement for the nation's trade gap, at least for January. Other areas of strength include aircraft orders and also motor vehicles orders where domestic retail sales have been very solid.

Turning to shipments, they rose 0.3 percent in the month though shipments of core capital goods, reflecting prior weakness in orders, did dip 0.4 percent in what is a soft start to first-quarter business investment. Unfilled orders inched 0.1 percent higher after dipping a sharp 0.5 percent in December. Inventories are a plus, falling 0.4 percent and moving the inventory-to-shipments ratio down to 1.36 from 1.37. Inventory overhang has been a running concern in the factory sector where output over the last year has come to a standstill.

But the sector did show lots of life in January. But that was January. The early indications on February are broadly negative for a sector where weak exports, made weaker by the strong dollar, and a collapse in energy spending continue to take a series toll. Note that the gain for machinery came despite another steep downturn, at minus 5.8 percent, for mining & oil field equipment.

Recent History Of This Indicator:
Manufacturing definitely popped higher in January with both the industrial production and durable goods reports showing strength. And strength is expected for the January's factory orders report where a strong 2.0 percent gain is expected. The durables report did show wide strength including a bounce back for capital, but early indications on February's factory activity are uniformily negative and suggest that January was not the beginning of a new trend.