Factory Sector Indicators Mixed

The major indications on the factory sector are mixed for January with more signs of moderation than acceleration in today's durable goods report. Total orders sank a sharp 3.7 percent reflecting more than a give back for aircraft orders as the ex-transportation reading dipped an unexpected 0.3 percent. Unfortunately capital goods are part of the weakness, with core orders (nondefense ex-aircraft) down 0.2 percent in January following December's 0.6 percent decline.

Total shipments are another point of softness, up only 0.2 percent to begin the first quarter off slowly. And shipments of core capital goods, which are inputs into GDP business investment, begin the quarter with only a 0.1 percent gain. Total unfilled orders are another negative, down 0.3 percent and aside from a 0.6 percent gain in December are extending a surprisingly flat trend. One positive is inventory growth, up 0.3 percent and together with gains for this morning's wholesale and retail inventories (released separately) are pointing to a quick start for first-quarter inventories.

But like the previously released industrial production report, a quick start isn't what the factory sector is showing and this despite all the enormous strength underway in private and regional surveys like yesterday's Dallas Fed data or last month's ISM report. Year-on-year growth rates in today's report underscore the slowing, moving down from the low double digits/high single digits to the 6 percent range. Like housing, the factory sector appears to be slowing following last year's rush at year end.

Recent History Of This Indicator:
Orders for aircraft and vehicles have been solid and have helped offset recent weakness in orders for core capital goods (nondefense ex-aircraft). Econoday's consensus for durable goods orders in January is a -2.0 percent decline with ex-transportation seen up 0.3 percent and core capital goods orders seen rising 0.5 percent.