December Factory Orders

Updated 02-Feb-07 10:35 ET

About this release

Highlights

December factory orders 2.4%, shipments 1.4%, inventories 0.1%

Key Factors

Durable goods orders revised to a weaker 2.9% gain as nondurables rose a strong 1.8%.
Ex-transportation orders rose 2.2% after four months of decline, ex-defense orders a strong 3.1%.
Leaves a small 1.3% yoy rise in factory orders, core capital goods (ex defense, aircraft) orders at 7% yoy.
The slowing in capital investment was countered by strong broad-based December gains. Supports 2007 strenthening.
Shipments strong gain leaves only an 0.4% yoy pace. Inventory growth was weak given somewhat bloated supply.
Long production cycle for aircraft and capital goods leaves some cushion against a sharp drop in production.

Big Picture

Factory orders are volatile but the recent weakness is more than just the struggling auto and housing sectors and the resulting spillover to related industries. A Q3 dip in business confidence has slowed capital investment which showed a moderate rebound in December. Annual orders growth has softened to just 1.3% yoy as lagged shipments (sales) of just 0.4% yoy reflect the weakening as core capital goods orders remain the mainstay at 7.4% yoy. The weakness is consistent with the Nov/Jan contraction in the ISM manufacturing index and the weakness in industrial production despite the underlying fundamentals of flush corporate balance sheets and high capacity use which helps support capital investment. Briefing.com expects a lift in early 2007 as the business outlook improves capital investment plans.

Category	Dec	Nov	Oct	Sep	Aug
Factory Orders	2.4%	1.2	-4.5	1.7	-0.3
Less Defense	3.1	0.5	-3.5	0.8	-0.5
Durable Goods	2.9	2.2	-8.1	8.7	0.0
Nondurable Goods	1.8	0.1	-0.1	-5.9	-0.6
Unfilled Factory Orders	2.1%	1.8	1.4	4.1	0.5
Factory Shipments	1.4%	0.2	0.1	-4.2	0.8
Factory Inventories	0.1%	0.2	0.3	0.6	0.6
Inventory/Shipment Ratio	1.22 mo	1.23	1.23	1.23	1.17

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Release Details

Factory Orders

Importance (A-F): This release merits a D+.
Source: The Census Bureau of the Department of Commerce.
Release Time: 10:00 ET around the first business day of the month (data for two months prior).
Raw Data Available At: http://www.census.gov/ftp/pub/indicator/www/m3/index.htm.

Factory orders consist of the earlier announced durable goods report plus non-durable goods orders. The report is very predictable with nondurables the only new component. Nondurables consist of such items as food and tobacco products which grow at a fairly consistent monthly rate, so that market forecasts for this report are far more accurate than for the durable orders report. In addition to seeing nondurables for the first time, the market also watches for revisions to the durable orders data, which can be significant. At present, durable goods orders sum to about 54% of total orders.

The final piece of new information in this report is factory inventories -- the first glimpse at the inventory picture each month (wholesales inventories are typically released a week later, with retail inventories released a few days after wholesale inventories). Though the inventory figure is not a market-mover, economists use this number to help forecast inventories in the quarterly GDP report.