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 8/4/08 For Jun 2008 | ||||||||||||
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Highlights
Boosted by inflationary effects but also reflecting underlying strength, factory orders surged 1.7 percent in June. Factory orders for May were revised 3 tenths higher to a gain of 0.9 percent. Orders for non-durable goods, reflecting price gains for petroleum and coal, jumped 2.5 percent in June following a 1.7 percent gain in May and a 3.5 percent gain in April. These gains reflect the input cost inflation that is plaguing manufacturers who are struggling to pass through these costs to their customers.
But outside of the non-durables component there is also strength. Durable goods orders rose 0.8 percent, unchanged from the initial estimate posted the week before last. Orders for primary metals, fabricated products, machinery and electrical goods were all strong as were orders for defense goods. Transportation goods, despite a bounce back in vehicles and reflecting a drop in civilian aircraft, were weak. Orders for nondefense capital goods excluding aircraft were strong but including aircraft declined. The outlook for aircraft is uncertain given Boeing and Airbus production delays. Orders for durable consumer goods, a category of course that excludes petroleum, bounced up in the month following a steep drop in May and a smaller drop in April.
Factory shipments were solid in June and show gains for all three months of the second quarter. Backlogs also rose in all three months of the quarter. Inventories rose in June but over the second quarter as a whole were little changed, lagging order and shipment growth in what is a plus for the economic and employment outlooks.
Today's report indicates that the manufacturing sector is still holding its own -- at least it did in June. But last week's manufacturing report from the Institute For Supply Management, though showing a dead-even 50.0 headline reading, showed a sizable decline in new orders in what may be an ominous portent for this and the durable goods report for July.
Factory orders indicate that the manufacturing sector is steady and is not dipping into recession but some of the strength is illusory. Factory orders for May rose 0.6 percent, following a 1.3 percent surge the month before. The gains in both months were led by large increases in nondurables with higher oil prices being the key factor. We did get some softening in durables over the April and May period, but with the advance durables report, new orders for durables popped back up by 0.8 percent in June. This will combine with a likely oil price boosted nondurables gain for June to give a sizeable lift to overall factory orders for the month.
Factory orders Consensus Forecast for June 08: +0.7 percent
Range: 0.0 to +1.1 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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