Factory orders represent the dollar level of new orders for both durable and nondurable goods. This report gives more complete information than the advance durable goods report which is released one or two weeks earlier in the month. Why Investors Care
| Released on 7/2/08 For May 2008 | ||||||||||||
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Highlights
Indications confirm that the manufacturing sector is steady and is not dipping into recession. Factory orders for May rose 0.6 percent with durable goods orders, data released in the advance durable goods report last week, unrevised at no change in the month. The no change reading is an improvement from declines in the previous two months and in three of the prior four months.
Advance data in this report are on non-durable goods, a slightly larger category than durable goods and one being badly inflated of course by energy prices. Orders for non-durable goods, reflecting price-related gains for petroleum and coal, jumped 1.2 percent following two prior months of 3 percent plus gains. Ongoing increases in oil prices unfortunately point to inflated gains for this category in coming reports, gains that come at the expense of the durables category.
Total factory shipments inched 0.1 percent higher in May though durable goods showed a 1.1 percent decline with consumer durable goods down 2.4 percent -- the most negative news in the report. Transportation equipment showed sweeping declines across cars, light trucks and heavy trucks. Wood products, paper products, printing and textiles also showed declines. Shipments of non-defense capital goods were unchanged following a 1.8 percent jump in April, together pointing to rising business investment in the second quarter -- which is perhaps the most positive aspect of the report.
Other data included a 0.9 percent rise in total backlogs which are extremely fat on aircraft orders. Inventories rose 0.5 percent but the gain is of little concern given an unchanged reading the month before. Growth in inventories is often a negative during slowdowns, yet the manufacturing sector isn't quite in a slowdown and will continue to need sufficient stocks for production. Yesterday's manufacturing report from the ISM for June was very similar in tone to these numbers for May, and -- as yet -- there's no indication that rising costs are pushing manufacturers into recession.
Factory orders rose 1.1 percent in April despite a 0.6 percent decline for durable goods. Overall orders were boosted by a price-related 2.8 percent jump for nondurable goods, primarily for petroleum and coal products. More recently for May, durable goods orders were unchanged, following a revised 1.0 percent drop in April. However, excluding the transportation component, new orders fell back 0.9 percent, following a 1.9 percent surge in April. We can expect higher prices for commodities to once again boost the nondurables component for May orders. But after inflation is taken into account, both durables and nondurables orders now appear to be trending around a flat line.
Factory orders Consensus Forecast for May 08: +0.6 percent
Range: 0.0 to +1.4 percent
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Even though monthly shipment data fluctuate less than new orders, both series show underlying trends more clearly by looking at year-over-year changes. In 2005, new orders rose more rapidly than shipments due to large gains in aircraft orders. Aircraft orders have a long lead to shipment. |
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