New Factory Orders Fall 1% In May

May was a weak month for the factory sector as new orders fell 1.0 percent and show specific weakness in capital goods. New orders for core capital goods (nondefense ex-aircraft) fell 0.4 percent following a 0.9 percent drop in April while shipments fell 0.5 percent to nearly reverse April's 0.6 percent gain.

Commercial aircraft orders, which have been soft, improved on the month with vehicle orders, where growth has been respectable, also showing a bounce. Monthly weakness in transportation came from defense aircraft and ships & boats, two smaller components that show large double-digit declines. Excluding transportation, factory orders inched up 0.1 percent on the month.

This report would be weaker were it not for price-related gains in oil-related subcomponents, specifically on the non-durables side where orders rose 0.3 percent. Durables orders fell 2.3 percent on the month, 1 tenth deeper than last week's advance report for this component.

Weakness in capital goods means weakness in business investment and reflects weakness in business expectations. And expectations aren't getting any lift from Brexit. Weakness in capital goods also means extended trouble for the nonresidential investment component of the GDP report, here trouble for the second quarter.

Recent History Of This Indicator:
Factory orders are expected to fall 1.0 percent in May as the advance release of the 2.2 percent decline in the durables component is expected to be offset by an oil-related price gain for nondurables. Capital goods have been very weak and were weak once again in the May durables report, underscoring retrenchment in business expectations and further trouble for the nation's productivity. The factory sector has been held back for nearly 2 years by weakness in capital goods, including mining & oil field equipment, and also by general weakness in exports -- and this was all before Brexit.