Factory Orders Data Mostly Soft

Factory orders did rise 1.9 percent in April but reflect a monthly swing higher for civilian aircraft. Otherwise, data are mostly soft especially for core capital goods where orders, reflecting contraction for machinery, fell 0.6 percent and follow a soft 0.3 percent rise in March and a steep 2.1 percent decline in February. Orders for non-durable goods rose 0.4 percent and reflect, not fundamental strength in demand, but the month's rise in energy prices.

One plus is that the nation's factories are keeping down their inventories which extended a run of declines with a 0.1 percent dip that pulls the inventory-to-shipments ratio down one notch to 1.36. Unfilled orders, which had been very weak, rebounded to plus 0.6 percent in another positive while shipments, in the biggest positive of all, rose a sizable 0.5 percent.

But the story of this report is really about business investment where the decline in core capital goods orders is a serious negative, especially for the nation's weak productivity outlook. Note that the factory orders report includes revised data on durable goods and initial data on non-durable goods.

Recent History Of This Indicator:
Factory orders are expected to rise 2.0 percent in April but the gain is likely to mask significant weakness in capital goods orders, based on the advance durable goods report where core orders fell 0.8 percent for the third decline in a row and the fifth of the last six months. Still, vehicle demand and aircraft demand are positives as may be dollar totals for energy products given oil's price rise during April. The factory orders report includes revised data on durable goods and initial data on non-durable goods.