Factory Orders Look Grim in October Down 3.6 Percent, What’s Going On?

Shipments and new factory orders are down nearly across the board. But what’s really going on?

Factory Orders Synopsis

New orders for manufactured goods in October, down following two consecutive monthly increases, decreased $21.8 billion or 3.6 percent to $576.8 billion, the U.S. Census Bureau reported today. This followed a 2.3 percent September increase. Shipments, down two consecutive months, decreased $8.2 billion or 1.4 percent to $577.8 billion. This followed a virtually unchanged September decrease. Unfilled orders, up ten of the last eleven months, increased $4.0 billion or 0.3 percent to $1,356.8 billion. This followed a 1.3 percent September increase. The unfilled orders-to-shipments ratio was 6.90, up from 6.88 in September. Inventories, up four consecutive months, increased $0.5 billion or 0.1 percent to $857.0 billion. This followed a 0.1 percent September increase. The inventories-to-shipments ratio was 1.48, up from 1.46 in September.

Enough Already

The above snip is courtesy of Census Department.

Usually I go over factory orders by sector, plus shipments. However, the Census Department’s chart that follows shows the silliness of such endeavors.

If anyone can explain what that chart means, please do so. And revisions make a further mockery of it all. New orders were revised from 2.8 percent to 2.3 percent.

My chart shows the same wild swings but with more breakdowns as follows.

October Numbers

• Total Manufacturing: -3.6%
• Motor Vehicles and Parts: -3.6%
• Nondurable Goods: -1.9%
• Excluding Transportation: -1.2%
• Nondefense Capital Goods Excluding Aircraft: +0.9%
• Shipments: -1.4%

That looks pretty grim but the numbers and revisions are so wild in both directions that it’s impossible to see what’s happening.

Economists often put a spotlight on “core capital goods” defined as Nondefense Capital Goods Excluding Aircraft.

The rationale is core capital goods measure investment and thus is a leading indicator of future production. Having followed this for years, I assure you that it’s meaningless.

Aircraft Orders

Part of the problem is wild changes in aircraft orders. Starting in June, the last five aircraft percentage changes are as follows: +71.1%, -45.7%, -17.5%, +90.6%, and October is -49.6%.

Aircraft orders skews transportation orders.

Shipments are what impacts GDP. More accurately its real (inflation-adjusted) shipments that impact GDP. New orders lead to shipments eventually, but aircraft orders have a massive lead time.

So instead of going over all the components, let’s take a step back to see if we can spot trends that are impossible to see in the monthly noise.

I created three new charts just moments ago for discussion.

Factory Orders and Shipments

Check out the line on core capital spending (light blue). It’s no wonder that I have found percentage increases or decreases to be meaningless.

Yet, every time core capital spending rises, someone puts a spotlight on it, but ignoring it when it goes down.

That chart makes it look like things are humming other than nondurable good.

In reality, things are not humming because it is inflation-adjusted sales and shipments that matter.

Real Factory Orders and Shipments

Real Factory Orders and Shipments Since 2021

Factory Orders Synopsis

• Inflation makes it appear there is a US manufacturing revival.
• Long term, US manufacturing is still in decline.
• Aircraft orders helped save durable goods orders. Housing related durable goods such as refrigerators and stoves have taken a hit.
• Real manufacturing excluding transportation is down 7.4 percent, from 170,033 to 157,510 since March of 2022.

Forget all the monthly percentage nonsense because that’s what’s really going on.

Expect More Inflation

Biden wants to bring manufacturing back to the US. But his big push for unions and on EVs is making a mess of things.

Green Fantasy

In the real world, The Green Fantasy Ends Because Consumers Don’t Want to Pay for It

EVs are not selling because despite massive subsidies to both the manufacturers and consumers, the latter via tax credits, consumers don’t want them.

GM Decreases EV Investment in Favor of Buybacks

Note that GM and Ford are scaling back on EVs in favor of more gasoline-powered cars. And GM is repurposing money for EV investments into share buybacks and dividend hikes.

For discussion, please see To Shore Up Share Price, GM Decreases EV Investment in Favor of Buybacks

And Manchin is wrong too. He wants to cut off China. Sorry, it cant be done.

It’s Not Easy to Avoid Buying Items Made or Sourced in China

For discussion, please see It’s Not Easy to Avoid Buying Items Made or Sourced in China

GM and Ford are in a battle over EV batteries compounded by absurd language in the Inflation Reduction Act.

Inflationary pressures are substantial. The Fed has its hands full despite widespread belief the Fed finally is getting inflation under control.