Factroy Orders Higher Than Expected

Up a higher-than-expected 0.7 percent, factory orders in October added to September's very strong gain which is now revised 3 tenths higher to 2.6 percent. October's increase for durable goods, also at 0.7 percent, is revised 1 tenth lower from last week's advance report with orders for non-durable goods, which are the fresh data in today's report, up 0.6 percent reflecting gains for petroleum and chemical products.

The durables side in October got a big boost from defense aircraft orders that offset a monthly swing lower for commercial aircraft. October's orders for motor vehicles were solid as were orders for primary metals, construction machinery, and electronic components which are all goods where shortages have been reported.

Orders for core capital goods (nondefense ex-aircraft) slipped 0.1 percent after August's 0.2 percent fall. These are not positive indications for fourth-quarter shipments of capital goods that are inputs into GDP. Business investment did rise in the third quarter but only modestly.

A big positive in today's report is a second straight strong build for unfilled orders, up 0.8 percent and 0.9 percent the last two months and getting special boosts from primary metals, mining machinery, and also defense aircraft. This points to the need to clear backlogs which should be a further plus for manufacturing employment, payroll data for which earlier this morning were positive. Inventories are also another positive, rising 0.5 percent in a solid and welcome build that should keep production and shipments moving higher.

The manufacturing sector is a central strength of the U.S. economy and, despite softness in capital goods, looks to be closing out 2018 in favorable fashion.