Factory orders beat the Econoday Consensus estimate of 1.1% by 0.1 percentage points but the good news stops there. Aircraft orders which have a very long lead time skewed the results higher.

Strength in aircraft orders is masking what is not a favorable factory orders report where the January headline rose a nearly as-expected 1.2 percent. When excluding transportation equipment, orders rose only 0.3 percent. And when looking at core capital goods (nondefense ex-aircraft) the results turn decidedly weak, at a 0.1 percent decline for orders which points to softness ahead for related shipments. And shipments were already in contraction in January, falling 0.4 percent.

There is no revision to December’s headline though there is one for unfilled orders which are pushed down another tenth to a very steep minus 0.8 percent. In January, unfilled orders fell 0.4 percent for the 7th decline in 8 months in the worst streak of the economic cycle. This is not a good sign for factory employment.

Turning back to new orders, nondurable goods helped January reflecting gains for petroleum and coal where prices were on the rise during the month. Inventories and shipments held in line during January, both up 0.2 percent and keeping inventories to shipments unchanged at a 1.31 ratio.

Held down by continued weakness in foreign demand, capital goods orders so far are not matching the burst of optimism underway in regional reports. Next data will be factory payrolls in Friday’s employment report followed the next week by the manufacturing component of the industrial production, both of which, like factory orders, have been soft.

New Orders and Shipments

durable-goods-new-orders-2017-03-06

The regional manufacturing and ISM diffusion indexes have shown increasing strength, but factory orders and factory output haven’t. The diffusion indexes seem suspect.

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Mike “Mish” Shedlock