Factory orders, like much of the economy, fizzled in March, up only 0.2 percent and skewed higher for a third month in a row by aircraft. The split between the report’s two main components shows a 0.5 percent dip for nondurable goods — the new data in today’s report where weakness is tied to petroleum and coal — and a 0.9 percent rise for durable orders which is 2 tenths higher than last week’s advance report for this component.
The gain for durables looks impressive but when excluding transportation equipment (which is where aircraft is tracked) orders fell 0.3 percent. But core capital goods orders are a plus in the report, rising 0.5 percent (nondefense ex-aircraft) though the gain follows marginal increases of 0.1 and 0.2 percent in the prior two months.
Unfilled factory orders, which had been in long contraction, are a clear plus, up 0.3 percent following February’s 0.1 percent gain for the best back-to-back showing in 2-1/2 years. A negative however is a 0.1 percent decline in total shipments that came despite a constructive 0.5 percent rise in shipments of core capital goods. Inventories were unchanged in the month though the dip in shipments drove the inventory-to-shipments ratio 1 tenth higher to a less lean 1.32.
Aircraft had a weak year last year and have been making up lost ground so far this year. But how long Boeing can give total orders a lift is uncertain, and the performance of the wider factory sector, despite sky high strength in many anecdotal reports, has been no better than mixed."
Shipments and New Orders
There are no surprises in the report. Automotive weakened as expected. Construction fell back after a sizzling start to the year. None of this points to a strengthening second quarter.
Econoday provided balanced reporting today, including a question I have been asking all quarter: How long can Boeing give total orders a lift?
Regardless, those aircraft orders will ship not next quarters but many years from now.
Given Boeing’s backlog and ability to manage deliveries, aircraft orders will not impact GDP much in the short run, no matter how strong or weak the reported numbers.
Taking that into consideration, this report is negative for GDP.
Mike “Mish” Shedlock