Factory Orders Flatten Out in August

Skewed by Boeing airshow orders, factory orders fell 10.1 percent in August after soaring 10.5 percent in July. Taken together, the two months point to flat order growth for the nation's manufacturing sector.

Excluding transportation, where aircraft orders are tracked, orders edged 0.1 percent lower following a 0.7 percent decline in July. But in a slight offset, orders for nondefense capital goods excluding aircraft -- which is a core reading on business investment -- rose 0.4 percent to more than offset a 0.1 percent decline in the prior month.

Another positive in the report is a solid 0.6 percent rise in total unfilled orders, which have been solid and which will give manufacturers some breathing space should new orders remain flat. Total shipments are a negative in the report, down 1.0 percent but follow a 1.4 percent rise in the prior month. A look at shipments of nondefense capital goods ex-aircraft shows a marginal 0.1 percent gain but follow July's very strong 1.9 percent rise.

The weakness in shipments lifted the inventory-to-shipments ratio by one notch to a less lean 1.30 from 1.29, which means that inventory restocking will unfortunately not be a priority for manufacturers.

Turning back to new orders, motor vehicles fell a steep 5.4 percent following July's outsized 7.3 percent gain in volatility likely tied to adjustment issues surrounding this year's later timing of auto retooling. Nondefense aircraft, the wildcard in the July and August reports, shows a 74 percent swing lower following July's 316 percent surge. New orders for total nondurable goods industries fell 0.4 percent following July's 0.8 percent decline, both reflecting price effects on petroleum and coal products.

Anecdotal reports out of the manufacturing sector have been stronger than the hard data which, like the manufacturing component of the industrial production report, show volatility with perhaps a slight upside tilt.

Recent History Of This Indicator

Factory orders surged 10.5 percent in July, skewed by Boeing orders at the Farnborough Airshow. Excluding transportation equipment, which includes both aircraft and vehicles, factory orders actually slipped, down 0.8 percent in the month. But there were important positives in the report including a sharp 1.2 percent rise for shipments and a 1.4 percent rise for shipments of nondefense capital goods excluding aircraft. Unfilled orders showed an unusually outsized gain of 5.4 percent while inventories, up only 0.1 percent, will need to be refilled. More recently, new factory orders for durables in August dropped a monthly 18.2 percent.