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Friday, September 2, 2016

Factory Orders Surge In July

The early indications for August are soft to mixed but July was definitely a solid month for the factory sector. After monthly declines of 1.2 and 1.8 percent in May and June, factory orders surged 1.9 percent in July for the best gain since October last year.

Orders for core capital goods (nondefense ex-aircraft) were especially strong in July, up 1.5 percent following June's 0.5 percent gain in readings that upgrade what has been a very soft outlook for business investment. Aircraft, which is always volatile in this report, is July's biggest plus, surging 90 percent in the month. But vehicles are a negative in the report, down 0.5 percent.

Other negatives include factory shipments which slipped 0.2 percent and include a 0.5 percent decline in shipments of core capital goods. The latter decline is an immediate negative for the nonresidential fixed investment component of the GDP report though the big order gains in July and June for core capital goods point to future strength for this reading. Factory inventories are stable and lean, edging 0.1 percent higher in the month to keep the inventory-to-shipments ratio unchanged at 1.35.

This report is mostly solid but is a bit dated. This morning's employment report showed a decline in factory hours which points to a retreat for manufacturing in the next industrial production report, a report which, like factory orders, showed strength in June and July. On net, the factory sector doesn't look like it will be contributing much to second-half economic growth but it doesn't look to be a negative either.


Recent History Of This Indicator:
Factory orders are expected to rise 2.0 percent in July as the advance release of a 3.7 percent jump in the durables component is expected to be offset by oil-related price weakness for nondurables. A bounce higher for capital goods orders was a highlight of the durables report.

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