Factory Orders Rise 0.7% but Less Than Consensus, Transportation Leads

Factory orders rose 0.7% in June. Nondefense Aircraft rose 3.2%, Defense aircraft 20.2%, and motor vehicles 0.9%.

Let's dive into more details from the Census Bureau report.

New Orders

New orders for manufactured durable goods in June, up following two consecutive monthly decreases, increased $2.1 billion or 0.8 percent to $251.5 billion, down from the previously published 1.0 percent increase. This followed a 0.3 percent May decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $1.8 billion or 2.1 percent to $87.7 billion. New orders for manufactured nondurable goods increased $1.2 billion or 0.5 percent to $250.2 billion.

Shipments

Shipments of manufactured durable goods in June, up ten of the last eleven months, increased $3.7 billion or 1.5 percent to $251.1 billion, down from the previously published 1.7 percent increase. This followed a 0.2 percent May increase. Transportation equipment, up following two consecutive monthly decreases, led the increase, $3.1 billion or 3.7 percent to $85.3 billion. Shipments of manufactured nondurable goods, up twelve of the last thirteen months, increased $1.2 billion or 0.5 percent to $250.2 billion. This followed a 1.1 percent May increase. Chemical products, up three of the last four months, led the increase, $0.5 billion or 0.8 percent to $65.4 billion.

Inventories

Inventories of manufactured durable goods in June, down following seventeen consecutive monthly increases, decreased $0.5 billion or 0.1 percent to $402.9 billion, unchanged from the previously published decrease. This followed a 0.3 percent May increase. Transportation equipment, down following two consecutive monthly increases, drove the decrease, $1.9 billion or 1.4 percent to $126.9 billion. Inventories of manufactured nondurable goods, up twelve consecutive months, increased $1.1 billion or 0.4 percent to $266.3 billion. This followed a virtually unchanged May increase. Chemical products, up eight of the last nine months, led the increase, $0.7 billion or 0.8 percent to $88.7 billion. By stage of fabrication, June materials and supplies increased 1.0 percent in durable goods and increased 0.1 percent in nondurable goods. Work in process decreased 1.4 percent in durable goods and increased 0.8 percent in nondurable goods. Finished goods increased 0.2 percent in durable goods and increased 0.5 percent in nondurable goods.

Economists Estimates

The Econoday consensus estimate was for a rise of 0.9% in a range of 0.2% to 2.5%. The range is hard to understand because we had an advance report on July 26 of 1.0%. It appears most of the economists simply picked the advance estimate or something close.

Factory orders for June rose a sharp 0.7 percent but miss Econoday's consensus by 2 tenths in a report that does include some slowing. Orders for commercial aircraft were a plus in the month as were orders for vehicles excluding which, as well as all other transportation equipment, orders in June rose 0.4 percent and are unchanged from last week's advance estimate.

What are changed are orders for core capital goods (nondefense ex-aircraft) which are revised to only a 0.2 percent gain vs a 0.6 percent rise in last week's advance data. Shipments for this reading are revised 3 tenths lower to a 0.7 percent gain in a downgrade that will weigh slightly on forecasts for the second estimate of second-quarter GDP.

Orders for steel and aluminum fell back in June though unfilled orders are up and related inventories continue to rise sharply. Total orders for durable goods rose 0.8 percent, revised 2 tenths lower from the advance report, with orders for non-durable goods, the fresh information in today's report, up 0.5 percent on strength in chemicals vs May's 1.1 percent gain which was fed by strength in petroleum and coal.

Other data include a useful build in total unfilled orders which extended recent gains with a 0.4 percent rise. Total shipments were very strong, up 1.0 percent despite wide reports in the month of trucking snags. Inventories are low in the factory sector, up only 0.1 percent in June to drive down the inventory-to-shipments ratio to 1.33 from 1.35.

Today's strong headline aside, June wasn't that great of a month for the factory sector which perhaps was held down to a degree by tariff-related disruptions. Year-on-year growth in orders is very positive, at 6.1 percent, but down from 9.2 and 7.9 percent in the two prior months. Nevertheless, indications including strong readings in regional and private manufacturing reports point to second-half acceleration for the sector and second-half leadership for the 2018 economy.

Initial Reports Garbage

Year-Over-Year Revised Reports

The year-over-year revised trend shows up more clearly, but it lags by a quarter by the time the revisions are in.

Mike "Mish" Shedlock

Comments
No. 1-1
flubber
flubber

I have what is probably a dumb question in asking how the final $dollar amounts of orders are figured. As an example, if Boeing gets a $100 million dollar order for an airplane, and I am a subcontractor and Boeing gives me a $5 million dollar order of wing spars, and I give ALCOA a $1 million dollar order for aluminum sheet, what is the dollar number used for 'manufacturing orders' ? I think it should only be the $100 million dollars attributed to the Boeing order for an end-use airplane. How does the government know the breakdown that goes to sub-contractors??