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by Mish |

Factory orders may not be showing the same kind of strength that the ISM and Philly Fed are pointing to but they are solid, hitting Econoday’s February consensus at a 1.0 percent gain. Adding to the strength is a 3-tenth upward revision to January which is now at a 1.5 percent gain that follows December’s unrevised 1.3 percent rise.
The durables side of the report, up 1.8 percent in the month (revised from 1.7 percent in last week’s advance data), reflects a second month of outsized strength for aircraft, at a 56 percent monthly gain vs January’s 188 percent surge. But durables also include a respectable 0.3 percent gain for vehicles. Nondurable goods inched 0.2 percent higher on strength in chemicals (there is no advance report for nondurables).

But there are cracks that perhaps betray the strength and one is a second weak month for core capital goods (nondefense ex-aircraft) where orders fell 0.1 percent after managing only a 0.2 percent gain in January. Yet given strength of prior orders, shipments of core capital goods — which are an input into first-quarter GDP — rose a very solid 1.0 percent to help offset January’s disappointing 0.4 percent decline. This is an important positive for first-quarter GDP which had been slipping.
Turning back to weaknesses, total unfilled orders were unchanged in February to extend a nearly yearlong streak of disappointment. Lack of unfilled orders will not spark demand for factory hiring. Inventories rose 0.2 percent in line with a 0.3 percent rise in total shipments to keep the inventory-to-shipments ratio unchanged at 1.31.

Another question in this report is the two months of reliance on aircraft orders where strength cannot be expected to extend indefinitely, to say the least for this volatile component. And this morning’s trade report poses further questions especially for capital goods exports which have been stubbornly flat. Still, on a total basis, factory orders are showing the directional lift that advance anecdotal have been signaling with rare strength.

Factory Orders and Shipments

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Other than small revisions, the advance report set the tone.

The revisions may add a tick or two to GDP estimates, depending on what the models predicted.

New orders excluding aircraft fell 0.1%. When aircraft and autos take a simultaneous hit the report will look awful.

My take on the Advance Report was “overall weakness”.

For details, please see Durable Goods Orders Surge on Aircraft: Core Capital Goods and Autos Decline: Overall Weak Report.

Mike “Mish” Shedlock