Factory orders rose 0.2% in August vs. a Bloomberg Econoday Consensus estimate of -0.2%.
However, the Census Bureau revised July from +1.9% to plus 1.4%. Thus, the net reading vs. the original July report is actually -0.3%.
However, details are constructive for future investment.
Throw out the headline and look at capital goods. Factory orders in August edged only 0.2 percent higher but core capital good orders (nondefense ex-aircraft) jumped 0.9 percent following very impressive gains of 0.8 percent and 0.5 percent in the prior two months. These results point to a rebound for business investment which otherwise has been depressed this year.
But the new orders for capital goods will take time to fill and in the meantime business is slow as shipments of core capital goods slipped 0.1 percent following a July dip of 0.7 percent. These two readings will hold down nonresidential investment in the third-quarter GDP report, but that’s pretty much ancient history.
Other readings include no change for total shipments, a fractional dip of 0.1 percent in unfilled orders, and a constructive 0.2 percent build in inventories. In sum, this report is a positive for the economic outlook.
Factory orders are expected to slip 0.2 percent in August. Advance data on durables goods came in unchanged in August while expectations for the month’s non-durable orders, due to lower energy prices, are softer. The durables report showed hints of strength in core capital goods orders.
It’s October 5, and we are discussing August data. That’s how lagging this report is.
So yes, this is ancient history. And given the advance report, this was not all unexpected.
Before we get too excited by the rebound in core capital goods, let’s look at a couple of pictures.
Core Capital Goods New Orders
Core Capital Goods New Orders Detail
Core Capital Goods New Orders Percent Change From Year Ago
The first two charts show this is a volatile series, even with seasonal adjustments.
Moreover, despite increases in core capital goods orders for three consecutive months, orders are still down 2.8% from a year ago. Year-over-year orders have been negative every month starting January 2015 except for a tiny +0.26% reading in October 15.
This is hardly an inspiring rebound, but it may add to to anemic 4th quarter GDP estimates. We will find out in the Friday FRBNY Nowcast.
Mike “Mish” Shedlock