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 11/4/08 For Sep 2008 | ||||||||||||
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Highlights
The plunge in energy prices may be a plus for the economic outlook but it sank the dollar value of orders for nondurable goods in September and in turn for total factory orders which fell 2.5 percent. Orders for nondurable goods fell 5.5 percent in the month following a 3.2 percent plunge in August. Orders for durable goods actually rebounded in September, up 0.9 percent vs. a 5.5 percent plunge in August and against an initial estimate of a 0.8 percent gain.
There are no details offered in this report for nondurable goods but a rehashing on the durable side is in order given deep concern over the health of the manufacturing sector, concern heightened by a rare 30 handle for yesterday's ISM index. Orders for defense and transportations goods propped up the month though orders for nondefense capital goods, reflecting strength in machinery, were strong. But other categories were weak including furniture, computers and primary metals. Manufacturers in the latter category have been on the news wires warning that conditions plunged in October.
Other readings in the report include a 2.8 percent drop in total shipments. Shipments, which were down also in August, are of course when sales are tallied and when the data are registered in the GDP accounts. Unfilled orders are still a positive, up 0.4 percent in the month and showing no sign yet of cancellations. Inventories fell back 0.7 percent which is an important positive that reduces the risk of overhang, a greater risk than ever given the prospect of weakening orders and weakening shipments.
The end of the Boeing strike and replacement demand tied to the Hurricanes Ike and Gustav may give a lift to factory data in October and through year end. But the lift is not likely to be enough given the collapse underway in retail sales, which of course will cut demand for consumer goods and the machinery and materials needed to make them. There was no reaction in the financial markets.
Factory orders contracted severely in August but, based the latest durables report, may have posted a modest gain in September. Overall factory orders plunged 4.0 percent in August, reflecting a sharp contraction for durable goods and a moderate dip on the nondurables side that reflected lower prices for energy. Even though recent manufacturing surveys have been negative, the advance report for durables orders for September was on the positive side due to a surge in aircraft orders. New durables orders rose 0.8 percent in September and this likely will give some lift to overall factory orders for September. But the wild card is oil prices. The recent, sharp fall in oil prices will bring nondurables orders down and this very well could pull overall factory orders down for September. Regardless of the overall number, it will be important to sort out the durables and nondurables components for September.
Factory orders Consensus Forecast for September 08: -0.7 percent
Range: -2.9 to +1.5 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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