Factory Orders Dip, Still Strikingly Strong

The factory orders report closes the book on what was a solid April for manufacturing in a month when the headline -- an aircraft-distorted 0.8 percent decline -- definitely does not tell the whole story.

The split between the report's two main components shows a slight 0.1 percent increase for nondurable goods -- the new data in today's report with petroleum and coal once again higher -- and a 1.6 percent decrease for durable orders which is 1 tenth deeper last week's advance report for this component.

Civilian aircraft orders, which have been a key strength for the factory sector for the past year, took a breather with a 28.9 percent dip in April following gains of 60.8 and 14.5 percent in the prior two months.

Orders for primary metals, in the first full month affected by tariffs, rose 1.4 percent following March's 4.7 percent spike, with fabrications, which are indirectly affected by tariffs, up 1.8 percent in April after a 1.3 percent March gain. Inventories for both primary metals and fabrications are also building.

The striking strength of April's report is capital goods especially given weakness in machinery data which, however, is being offset by strength in electrical equipment and computers. Orders for core capital goods (nondefense ex-aircraft) rose 1.0 percent with shipments up 0.9 percent which is 1 tenth greater than the initial estimate. The latter is a direct input into GDP and both mark a very strong start to second-quarter business investment.

Going into what may prove increasing tariff effects, the U.S. factory sector looks very strong and may well be on verge of new acceleration one sign of which (aside from solid gains in factory payrolls) comes from unfilled orders in this report which, up 0.5 percent in April after a 0.8 percent build in March, have been showing sudden life.